When opting for a long-term loan such as a home loan, it's wise to strategize for risk mitigation. Even as your property serves as collateral, taking away the need for extra insurance, there remains a level of risk, particularly concerning the possibility of your death before paying off the loan. This is exactly when you still need to pay the home loan EMI. In case you cannot, the bank can seize your property. To safeguard your family financially in the event of your death during the home loan period, a long-term insurance policy acts as a safety net. In case of the passing away of the main earner, the insurance can cover the outstanding home loan, alleviating the financial burden on your family.
According to experts, home loan insurance operates similarly to term life insurance. “If someone decides to buy a property for lakhs or crores, they will require a safety net in the way of home loan insurance. This is because home loans can have a longer repayment period (15-20 years), and if the person who pays the equated monthly installment (EMI) on the loan passes away, the burden of repaying the outstanding loan will fall on family members,” Rakesh Goyal, director, Probusinsurance.com said.
“However, if they bought home loan insurance, in the event of the death of the person who pays the loan, insurance firms would settle the payment with the banks or non-banking financial companies (NBFCs) from which they obtained the home loan. The policyholder under home loan insurance is covered for the duration of the loan repayment. If the outstanding loan amount is paid, the insurance policy will expire,” Goyal said.
According to experts, home loan insurance works similarly to a life or a term insurance plan. The only distinction is that the home loan cover amount decreases throughout the loan tenure.
According to experts, if your only liability is your home loan, then you can consider buying home loan insurance as the sum assured decreases in line with the reduction in your outstanding loan amount. Whereas a term plan provides broader protection, which includes the home loan, and other types of loans and liabilities.
Also, keep in mind, a home insurance is different from home loan insurance. Typically, home insurance covers your building structure, belongings inside your house, or both, depending on the policy. It generally gives protection to your home and possessions from damage or loss caused by natural disasters, theft, and other events. On the contrary, home loan insurance is directly linked to the loan amount. In the case of home loan insurance, the coverage amount is linked to the loan amount, thereby confirming the loan is covered in case of unforeseen circumstances.
Knowing that your family will not be burdened in case of an unfortunate event can bring you peace of mind, ensuring that your loved ones can continue residing in the house without concerns about mortgage payments.
