How to insure your home loan?
There is no other place in this world where we feel as secure as our ‘own’ home. But in today’s price hike scenario, a home without a loan is unthinkable for an average Indian citizen. That means, once a home is bought, it is then time for loan repayment and a good sum of your income goes towards the same. The home purchased will become your proud possession only when the borrowed amount is completely repaid with interest.
But have you ever thought of a situation where you are unable to repay your loan? In case, if the borrower expires before the loan is fully repaid, the liability will naturally be transferred to his family. If the borrower is insured, the family may use the claim proceeds to settle the loan. But what if that money is not sufficient?
It is to tackle this situation that general insurance companies have come up with Home loan Insurances to save your family members from facing hardships if eventuality strikes. In a simplistic form, home loan insurance is a security that would fulfill the home loan obligations of the borrower if he or she expires or has some kind of permanent disability.
How it Works?
If a borrower with an active home loan insurance plan expires, the insuring company would pay back the remaining loan to the home loan company. While some companies exclude the installments already paid by the borrower when alive and pay back the pending amount, a few home loan insurance companies pay the balance to the home loan company and the balance to the family members. Home loan insurance is a boom for families with only one active earning member. They can now live in peace with an assurance that they would not be homeless if any unforeseen circumstance makes them loose the only earning member of the family. Most home loan insurance companies include deaths by accident in there clause giving a source of security in this uncertain world to the home loan borrower and his or her family.
Home Loan Insurance Example:
Let’s assume that a borrower takes a home loan insurance for a Home Loan of Rs 50 lakh. Let’s also assume that after paying up Rs. 20,00,000 of the principal amount, he or she meets with an accident and dies or is left permanently disabled. This means, a balance of Rs. 30,00,000 still has to be paid to the home loan company. The insurance company will pay the remaining amount (Rs. 30,00,000 in this case) to the home loan company.
A large number of home loan companies have teamed up with various life insurance companies to provide users the benefit of Home loan insurance. Users have the choice of availing their home loan insurance as either a home loan protection plan (HLPP) or a pure term cover depending on their convenience.
Home loan protection plan (HLPP) is usually sold with the home loan and offers a risk cover equal to the loan amount. As and when the loan amount decreases as borrower pays back the monthly installments, the size of the insurance cover gets reduced. In case of term plans for home loan insurance policies, the insurance cover remains constant and does not decreases with time.
