Home loan insurance – benefits and alternative

Home loan insurance - benefits and alternative

Home loan is the biggest debt or burden for an individual which he/she has to carry for a longer duration of time. You have to bear the home loan installments for a tenure of 20-25 years. For that you need a proper planning mainly financially to secure your family’s future. In case you have taken the loan for a small amount or your income has increase drastically which might help you to finish the loan in 4-5 years instead of 20 – 25 years that’s a different story. But most of the people has to repay loan for a longer duration of time and what if you die during this period? Most of the cases in India every family has a single earning member only. So he dies during the loan repayment tenure then it will be very tough for his/her family members to continue the rest of the EMIs. In such case Bank will take away your dream home from you and you will be in huge trouble with your family. So to secure your family from such an trouble you can subscribe to Home loan insurance while taking the home loan.

What is Home loan insurance

Like Term insurance plans Home loan insurance is also a similar kind of product but with little difference concept.This is a single premium insurance plan which you have to take before loan disbursement with home loan only. Bank will add the premium amount with the sanctioned loan amount and then calculate the home loan premium. E.g. Mr. A have purchased a flat with a loan of 19 lakhs and with that Home loan insurance cover premium added was 50,000 (This is a arbitrary calculation to explain the example, please contact bank for exact Home loan insurance premium for your loan). So Total loan taken for 20 years is Rs 19,50,000. But here the sum assured is the remaining amount payable to bank, which means whatever amount is remaining after paying monthly installment after a period that much amount will be covered in this Home loan insurance. So let’s say after 5 years Mr. A died paying only 2 lakhs of principle. So with the help of this insurance rest 17,50,000 will be repaid by the insurance company.

Alternative to Home loan insurance

Many people think that Home loan insurance cover is a simply waste of money. That is not true as insurance has its own meaning if you are thinking about your family future. But off-course sometime Home loan insurance premium can be much expensive which might increase your debt burden. And as this is a single premium insurance it is tough to bear that load sometime. In such case you might opt for a good pure term insurance plan. Now a days many private banks offer online term insurance plans where you can subscribe for a 1 crore policy at less than 10,000 premium per year. Do a proper research about term plans and go for it. This will also serve the purpose and even in a better way as this is a fixed sum assured plan.

Final Verdict

If you are seriously thinking about your investment and family security then instead of going for a Home loan insurance cover you can go for a pure term insurance plan. The idea is: If you subscribe for a Home loan insurance then you have to pay an healthy amount as this is a single premium insurance which will increase your emi burden. And also sum assured will reduce year by year. Instead of that if you subscribe for a term plan where you have to pay a very less premium and rest amount you can save as fixed deposit. In case you die also your family will get a fixed amount with which your family can repay the remaining loan and also they will have some cash left. So think which one is good for you.

So here the matter is not about how much you have to spent or how much bank will en-cash from you in the name of Home loan insurance cover, the matter how can you secure your family’s future even if you have taken a healthy debt which your family can not manage in absence of yours. So think maturely and decide.

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