Term Insurance for Home Loan: Everything You Need To Know
To make the dream of building a house into a reality takes a lot of planning. Many individuals opt for a home loan and pay the EMIs using their salaries. But, in case something happens to them and the family income is lost, their family might not be able to pay for the home loan, and in return, the lender of the loan may procure the property.
Considering this, you can either buy a term plan with a higher coverage so that your family can pay the home loan using the sum assured and keep the rest for their survival or you can link your term insurance policy with your home loan where a part of the premium paid goes towards paying the EMI of the loan. Thus, as the policy continues, the loan keeps on decreasing.
Why Should I Use My Term Policy to Secure My Home Loan
Whether you’re scared to burden your family with debt repayment or you’re the sole earning member of your family, buying a term plan makes complete sense. Your family may not be able to pay the EMIs after your demise, resulting in the lender repossessing the property. This is where a term plan can help you. While you pay your premiums for your term plan, these premiums will keep on decreasing your loan. And, at the end of the policy, your loan will be paid off. Your nominees will receive the sum assured minus the loan amount.
How Much Term Insurance is Required in the Case of a Home Loan
Safeguarding the family against any outstanding loans is the main objective of buying a home loan linked with term insurance. However, you must take into account your family’s future needs and home loan amount while choosing a sufficient cover. It is always advisable to get coverage of up to 10 to 12 times extra of your annual income and the outstanding sum of the home loan. For instance, Bhanu is a 30-year-old man with an annual income of Rs. 8 lacs along with an outstanding loan of 40 lacs. In that case, the adequate life cover should be 1.5 Crore (8 Lacs x 10 = 80 Lacs + 40 Lacs).
Why Term Plans Are Best for Home Loans
Term plans hold a cheaper premium compared to other insurance plans, making them a popular choice among policy buyers. Though loan providers offer home loan protection policies, most policyholders prefer to opt for a term plan instead due to its many benefits over a home loan protection plan.
Here, we’ve listed the benefits of term insurance for home loans.
- Term insurance offers lower premiums Term plans are typically cheaper compared to other life insurance products because they only provide death benefits. Under a term insurance plan, any individual can get a high life cover of up to 1 Crore in exchange for just INR 1,000 per month.
- Sum assured remains constant When you buy a loan cover plan, the coverage amount depends on the remaining loan. Hence, the cover amount will be reduced over time. Under a term insurance plan, the sum assured remains constant regardless of your loans. These plans offer fixed benefits, making it a more secure option.
- Transfer support What if you’ve to turn your home loan from one loan provider to another? If you take a loan cover plan, you may end up with a lot of paperwork to switch to a loan provider. But under term plans, you don’t have to worry about it. You can transfer your loan provider to another hassle-free.
- Guaranteed benefits Under the term insurance plan, your family will get the guaranteed benefit regardless of any outstanding loan amount. It means your family receives a death benefit minus outstanding home loans - a total win-win situation for policyholders. However, the remaining amount can be used to maintain living standards, pay the children’s higher education, pay any debts, etc.
- Flexibility to analyze policies Home loan providers come with a basic protection plan, which may not fulfill varying needs. Under a term insurance plan, you have the benefit of choosing different term plans and choosing the one that best suits your needs. However, the home loan protection plans also include commissions for mediators, which does not happen under term insurance plans.
Conclusion
Many of us are unaware of the benefits of opting for term insurance for housing loans. By doing so, you can secure the dream of owning your house. By getting term insurance linked with a home loan, you can protect your home loan EMIs as well as safeguard your family – all of this can be done under a term plan.
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