Home Loan Insurance: Protecting Your Investment

An investment in the form of a house loan is a long-term commitment. Home loans maybe for as long as 25 to 30 years or even longer. We are all well aware that life does not come with any guarantees. Consider the possibility that the person who pays the EMI on a monthly or quarterly basis is forced to retire due to unanticipated circumstances. As a result, the responsibility of repaying the debt rests on the shoulders of the dependent family members. For those who fail to repay their loans on time and make their monthly instalment payments on time, a scenario may arise in which their home or other collateral will be taken into possession. Due to non-repayment of the outstanding loan amount in any of these situations, an asset that is valuable to the family or that may be utilised in times of need may be seized. As a result, it is in times like these that you must plan ahead of time and a home loan insurance is the first step to do so. 

What is home loan insurance?

Home loan insurance is a type of insurance that provides protection to both lenders and borrowers against any unforeseen circumstances such as disability, death, job loss, or any other event that might prevent the borrower from repaying the loan. This insurance ensures that the borrower’s family members are not burdened with the repayment of the loan in case of an unfortunate event.

Why is home loan insurance important for lenders?

Lenders provide home loans with the expectation of receiving regular repayments. In the event of the borrower’s death, disability, or inability to pay, the lender’s investment is at risk. Home loan insurance provides lenders with the assurance that the loan amount will be paid back in case of unforeseen circumstances.

Why is home loan insurance important for borrowers?

Home loan insurance is essential for borrowers as it offers protection to their family members in the event of the borrower’s death, disability, or job loss. It ensures that the burden of repaying the loan does not fall on the family members in case of an unfortunate event.

It is important to note that the coverage and premiums of home loan insurance policies vary depending on the insurer and the terms of the policy. Borrowers should research and compare different policies and use a home loan insurance premium calculator to determine which policy is the most suitable for their needs.

Here are some additional key points regarding home loan insurance for borrowers in India:

• Home loan insurance is not mandatory but is highly recommended.
• The premium for home loan insurance is usually a percentage of the loan amount and is paid annually.
• Home loan insurance policies typically have a maximum coverage limit.
• The type of home loan insurance policy chosen may depend on the borrower’s age, occupation, and health status.

How are home loan insurance plans different from the other insurance schemes?

Home loan insurance plans differ from other insurance schemes as they are tailored to protect the borrower’s home loan amount. Unlike life insurance policies, home loan insurance policies have a decreasing sum assured, which means the pay out decreases over time as the loan amount decreases. Moreover, these policies have a fixed term and cover only the loan amount and not the borrower’s life. The following table provides a comparison between home loan insurance and other insurance schemes:

Insurance Scheme	Coverage	Term	Payout
Home Loan Insurance	Home loan repayment	Fixed	Decreasing sum assured based on outstanding loan amount
Life Insurance	Life cover for the entire life of the insured	Fixed or lifelong	Fixed sum assured
Health Insurance	Hospitalization expenses	Annual or multi-year	Based on policy terms and conditions
Vehicle Insurance	Vehicle damage and third-party liabilities	Annual or multi-year	Based on policy terms and conditions

Difference between a home loan insurance and a home insurance

While home loan insurance is designed to protect the borrower’s home loan amount in case of unforeseen events, home insurance is designed to protect the property and its contents against natural disasters, theft, or any other event that might cause damage to the property. While home loan insurance is not mandatory, property insurance is mandatory for home loans, as it protects the lender’s investment in the property. Home loan insurance charges are usually calculated based on the loan amount, tenure, and the borrower’s age. Borrowers can use a home loan insurance premium calculator to estimate their insurance premium. It is recommended to compare different home loan insurance plans to find the best home loan insurance policy in India.
Read: ₹50 Lakh Home Loan EMI With Calculator And Interest Rates 2024

Insurance Against Home Loan

Home loan insurance is a type of insurance that provides financial protection to both the lender and the borrower in the event of unforeseen circumstances such as death, disability, or loss of employment. The insurance policy pays off the outstanding balance of the home loan in the event of the borrower’s death, ensuring that the borrower’s family does not face any financial burden. Lenders benefit from this insurance because it reduces the risk of default on the home loan.

Home Loan Insurance Calculator

A home loan insurance calculator helps borrowers estimate the cost of insurance premiums based on the loan amount, interest rate, and other factors. This tool is useful for borrowers to compare different insurance policies and select the one that is most suitable for their needs and budget.

Let’s say a borrower has taken a home loan of INR 50 lakh with an interest rate of 7% for a tenure of 20 years. The borrower wants to calculate the premium for a home loan insurance policy. Using an online home loan insurance calculator, the borrower can enter the loan amount, interest rate, and tenure. The calculator may also ask for the borrower’s age, income, and other details to estimate the premium. 

Based on these inputs, the calculator may show that the premium for a home loan insurance policy is INR 5000 per annum. The borrower can compare this premium with other insurance policies and select the one that offers the best coverage at a reasonable cost. In this way, a home loan insurance calculator can help borrowers make informed decisions about their insurance needs and budget.

Life Insurance for Home Loan

Life insurance for home loan is a type of insurance policy that provides coverage for the outstanding balance of the home loan in case the borrower dies before the loan is fully paid off. The policy ensures that the borrower’s family is not burdened with the loan repayment in the event of the borrower’s untimely death.

Home Loan Insurance Premium Calculator

A home loan insurance premium calculator is a tool that helps borrowers estimate the amount of premium they would have to pay for the insurance policy. The calculator takes into account the loan amount, loan tenure, interest rate, and other factors to provide an accurate estimate of the premium amount.

For example, let’s say a borrower takes out a home loan of Rs. 50 lakh for a tenure of 20 years with an interest rate of 7.5%. They opt for a home loan insurance policy that offers coverage for the entire loan amount. Using a home loan insurance premium calculator, the borrower can estimate their premium amount.

Assuming the insurance premium rate is 0.5%, the calculation would be as follows:

Loan amount = Rs. 50 lakh Insurance premium rate = 0.5% Premium amount = (Loan amount x Insurance premium rate)/12 months x 20 years

Substituting the values, we get:

Premium amount = (50,00,000 x 0.5%)/12 x 20 Premium amount = Rs. 20,833 per annum

Therefore, the borrower would have to pay a premium of Rs. 20,833 per annum for the home loan insurance policy. The premium amount may vary depending on the insurance policy, loan amount, tenure, and other factors.

Best Home Loan Insurance Policy in India

There are several insurance providers in India offering home loan insurance policies. The best policy for an individual borrower depends on their specific needs and budget.

Insurance Provider	Premium Amount	Coverage	Features	Customer Reviews
HDFC Ergo	Starts at Rs. 2,500 per annum	Covers loan repayment in case of death, disability, or job loss	Optional add-ons available	Positive reviews for prompt claim settlement
ICICI Lombard	Starts at Rs. 2,500 per annum	Covers loan repayment in case of death, disability, or job loss	Optional add-ons available	Positive reviews for easy application process
SBI General	Starts at Rs. 2,000 per annum	Covers loan repayment in case of death, disability, or job loss	Optional add-ons available	Mixed reviews for claim settlement process
Bajaj Allianz	Starts at Rs. 3,000 per annum	Covers loan repayment in case of death, disability, or job loss	Optional add-ons available	Positive reviews for comprehensive coverage

It is important to note that the premium amount may vary based on the borrower’s age, loan amount, and other factors. Therefore, it is advisable to use a home loan insurance calculator to estimate the premium amount accurately. Additionally, borrowers should read the policy documents carefully and compare different policies before making a decision.

Loan Protection Insurance Calculator

A loan protection insurance calculator helps borrowers estimate the premium amount for insurance policies that provide coverage for different types of loans, including home loans. The calculator takes into account factors such as loan amount, interest rate, and loan tenure to provide an accurate estimate of the premium amount.

For example, suppose a borrower takes out a home loan of INR 50 lakhs for a tenure of 20 years at an interest rate of 7%. In that case, the loan protection insurance calculator can help them estimate the premium amount for insurance policies that provide coverage for the loan amount in the event of the borrower’s death, disability, or job loss.

Based on the loan amount, tenure, and interest rate, the calculator may estimate a premium of around INR 10,000 to INR 15,000 per year for such policies. However, it is important to note that the actual premium amount may vary depending on the borrower’s age, health condition, and other factors. Borrowers should compare different insurance policies and consult with insurance providers before making a decision.

Home Loan Insurance Charges

Home loan insurance charges refer to the premium amount that borrowers have to pay for the insurance policy. The premium amount depends on factors such as the loan amount, loan tenure, interest rate, and the borrower’s age and health.

Insurance Provider	Premium Rate per Year
HDFC Life	Rs. 2,500 – Rs. 8,500
ICICI Pru	Rs. 3,500 – Rs. 10,000
SBI Life	Rs. 3,000 – Rs. 9,000
Bajaj Allianz	Rs. 2,500 – Rs. 7,500

Is Property Insurance Mandatory for Home Loan?

While property insurance is not mandatory for a home loan, lenders may require borrowers to purchase property insurance to protect the property against damage or loss. Property insurance covers events such as fire, natural disasters, and theft, and provides financial protection to both the lender and the borrower.

Here are some reasons why property insurance may be required for a home loan:

• Lender requirement: Many lenders require borrowers to purchase property insurance to protect their investment in case of damage or loss to the property.
• Risk mitigation: Property insurance helps to mitigate risks associated with home ownership and protects the borrower from financial losses.
• Financial protection: Property insurance provides financial protection to both the lender and the borrower in case of damage or loss to the property.
• Compliance with laws: While property insurance is not mandatory by law for a home loan, some states may require it, and lenders may choose to follow these laws.

Peace of mind: Purchasing property insurance can give borrowers peace of mind knowing that their property is protected against unexpected events such as fire, natural disasters, or theft.

How to Avail Home Loan Insurance?

The option to purchase home loan insurance is normally available at the time of loan application. It is accessible via the financial institution from whom you are taking out the loan, and it is often included in the package with your house loan. While it is recommended that you get property insurance for a housing loan, it should be noted that it is occasionally marketed as a requirement for obtaining a house loan, which should not be the case. 

There are no insurance requirements that require loans to be taken out in conjunction with insurance and hence the myth that property insurance is mandatory for housing loan must be busted. As a result, you must do thorough research and choose an insurance plan that meets your specific requirements rather than accepting the first housing loan insurance that is shown to you.

What is the Procedure for Obtaining This Insurance?

Home loan insurance is similar to term insurance in that it protects against the loss of a home. Your loan repayment duration is covered by this insurance up to the end of your loan repayment period. A loan’s insurance term terminates after the outstanding loan amount has been repaid in full. 

However, if the person who is paying the loan passes away during the loan term time, the family may be able to claim the loan insurance in order to cover the outstanding house loan amount by availing housing loan death insurance. This guarantees that the bank does not confiscate the property or any other assets that were pledged as security.

Premiums Must be Paid

The majority of home loan protection plans provide the option of making a one-time premium payment. In addition, buyers have the option of bundling their premium payment with the overall loan amount. For example, if the premium amount on a Rs 50 Lakhs loan is Rs 2 Lakhs, the buyer would have the choice of obtaining a loan of Rs 52 Lakhs worth home loan insurance policy instead of Rs 50 Lakhs. They can include the premium in the EMI payments when repaying the outstanding loan amount via EMIs.

It is Also Important for Lenders

Financial organisations do not want any of their loans to get defaulted on or defaulted on. In all circumstances, their goal is to keep their loans from becoming bad debts, which would otherwise result in their being foreclosed. Therefore, these financial institutions encourage borrowers to get house loan insurance cover to safeguard their investments.

In the case of the death of a borrower who has not taken out a house loan protection plan, the financial institutions would be forced to go through the difficulties of seizing the asset and selling it in order to reclaim the outstanding loan amount. It is thus beneficial for financial institutions as well as the borrower if the borrower is protected by home loan protection insurance!

Riders And Add-On Bonuses 

Several home loan insurance providers additionally provide home loan insurance schemes that include optional rider plans that may be added to their policies to increase their coverage advantages. When purchasing the best home loan protection plan, riders such as those for a terminal or critical sickness, accidental death, unemployment, and disability may be added.

What are the Advantages of Obtaining Home Loan Insurance?

• Home loan insurance provides a lump sum of money as compensation, which may then be used to pay off the remaining balance of the home loan.
• The tax advantage from the house loan is received by the borrower under Sections 80C and 80D of the Internal Revenue Code as per the housing loan insurance calculator.
• With the payment of an additional charge, medical issues such as disability and serious illnesses may also be covered under the house loan insurance plan.
• A single home loan insurance policy may cover all of the borrowers under a combined home loan insurance policy.
• The borrower has the choice to repay the premium, which may be paid in a single or lump sum, or the insurance cost can be included in the overall loan amount and paid on an annual basis, depending on the circumstances home loan insurance benefits.
• Buyers have the option of converting part of their insurance payment into a lump sum that may be applied to their monthly home loan insurance cost and loan EMIs.

Obtaining Home Loan Insurance

Home loan insurance is a plan or policy that protects a borrower’s outstanding loan debt in the event that he or she dies during the loan payback period, therefore reducing the risk of financial loss. These plans provide a level of protection that decreases year after year as the loan amount decreases. 

In the event of the borrower’s death, while the loan is still in effect, the insurance company will pay off the outstanding loan balance with the lending institution. A house loan insurance coverage might expire either after the borrower has completed repayment of the loan or after the borrower’s death.

Significance of a Home Loan Insurance Plan

Housing loan insurance, which should be purchased in conjunction with your home loan, will not only cover any outstanding debts in the event of an unexpected or sudden event, but it will also ensure that any dependents, such as your family, will not lose their home or become homeless while you are away or during a crisis.

If you do not purchase a home loan insurance coverage, your bank has the right to take your home as collateral in the event of your death, causing your family and loved ones to be forced to leave their home. However, even if the property is not seized, your family will still be responsible for repaying the home loan. As a result, this kind of insurance coverage becomes nearly mandatory.

Some Considerations to Bear in Mind While Applying for House Loan Insurance

It is possible to purchase a home loan insurance plan at the time of application for a home loan. This insurance plan only protects the loan and does not cover the property. While the financial institution from whom you are taking out the house loan will often include a housing loan insurance plan with it, you may choose to purchase a coverage plan from any other insurance provider, regardless of whether or not the lender is involved.

• Until you have finished all of the payments on your house loan, you will be covered by a home loan insurance policy. Once the outstanding sum has been paid in full, the insurance term will be terminated together with the payment of the outstanding amount.
• The majority of insurance policies need just a single payment of the premium. Some small print specifics concerning the premium include the fact that the amount fluctuates depending on a number of different circumstances. 
• The amount of your home loan protection plan premium calculator is determined by your age and medical history. If you are older, your insurance premium is likely to be greater; if you are in excellent health, your insurance premium is likely to be lower home loan insurance rates. 
• Also, bear in mind that if your loan amount is bigger, the premium amount will be higher as well. 
• The duration of your loan has an impact on the cost of the premium as well; the longer the loan’s duration, the greater the cost of the premium will be. As a result, while choosing a premium, it is critical to consider all of these considerations. 
• One significant advantage of making the premium payment is that you will be able to claim a housing loan insurance tax benefit under Section 80C of the Internal Revenue Code.
• You should also be aware of the fact that you have the option to get housing loan insurance at any point throughout the term of your house loan.

When Should You Get House Loan Insurance Coverage?

Mortgage insurance provides an additional layer of protection, but it is not required to be purchased in conjunction with your home loan. Lenders will attempt to persuade you to take out a loan because they do not want to take the risk of incurring a possible debt if you fail to make your payments on time. Regulatory agencies such as the Reserve Bank of India (RBI) have not made the purchase of home loan insurance mandatory, instead of leaving it entirely up to the buyer’s decision.

When taking out a house loan, you are not required to purchase home loan insurance. On the other hand, this kind of insurance becomes necessary as a method of protecting your funds and valuables. As a prospective insurance buyer, it is important to remember to do your own research before making a decision about if property insurance is mandatory for home loan. Financial companies may attempt to sell you insurance in order to increase their profits, but you must choose the policy that best meets your requirements. 

Additionally, you are not required to get insurance immediately after receiving a loan. You may get the insurance at a later date via another financial institution or bank, or through one of the many insurance-selling websites. Home loan insurance, as a result, gives you much-needed peace of mind by protecting you and your family from any unexpected occurrences.

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What are Home Loan Protection Plans, And How Do They Work?

HLPP stands for Home Loan Protection Plan, and it is a kind of insurance plan. In the case of the borrower’s death, the insurance company will pay any outstanding balance on the term insurance for the home loan with the bank or lender, as specified in the policy. The duration of the insurance is often the same as the duration of the loan. As a result, a borrower may assure that his or her family will not be forced to leave their home owing to non-payment of a home loan after the borrower’s death.

Please keep in mind that a House Loan Protection Plan is not the same as property or home insurance. Property insurance protects you against dangers to your property or house such as earthquakes, fires, floods, storms, theft, and other natural disasters. Homeowners’ or property insurance may be required in certain cases. As a result, the terms of the house loan agreement will be quite clear in this regard.

Are Home Loan Protection Plans Required to Be Purchased by All Borrowers?

There is no need to obtain a home loan protection plan in conjunction with a house loan by law, the Reserve Bank of India, or the Indian Real Estate Development Authority (IRDA). Even the acquisition of a term insurance policy is not required. The acquisition of an insurance policy is entirely at the choice of the customer, who cannot be coerced into purchasing such policies by anybody.

For the sake of protecting their own interests, banks may adopt a different approach in this respect. A provision in the loan agreement must specify whether or not the company’s internal policy requires that insurance be purchased.

Home Loan Protection Plans Advantages

• In the tragic event of the loan borrower’s death, the insurance company pays the loan amount to the lender/bank on his or her behalf. The excess amount is paid to the policy holder’s beneficiary, who is usually his or her spouse.
• Other riders, such as critical sickness or disability riders, may be added on as well. In such a circumstance, your loan amount is protected not only in the event of your death, but also in the event of a serious sickness or permanent handicap. However, such riders will result in an increase in the premium amount.
• A single life insurance policy may provide coverage for all of the borrowers under a joint loan. There is no need to obtain a separate home loan insurance for each borrower in this situation.

Also, check out the best banks for home loans from here.

When taking out a house loan, you are not required to purchase home loan insurance. On the other hand, this kind of insurance becomes necessary as a method of protecting your funds and valuables. As a prospective insurance buyer, it is important to remember to do your own research before deciding. Financial companies may attempt to sell you insurance in order to increase their profits, but you must choose the policy that best meets your requirements. If you want help from authorized insurance advisors, you can certainly find help on NoBroker. Just leave a comment below this article and our executive will be in touch with you soon.

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