Which is Better Home Loan Insurance Vs Term Insurance?

When comparing home loan insurance versus term insurance, term insurance emerges as the superior choice for most individuals. Home loan insurance is a decreasing term policy that only covers your outstanding loan amount and protects just one specific liability, while term insurance provides comprehensive financial protection for your entire family across all expenses and obligations. With term insurance, you can secure a much larger coverage amount (₹1-10 crores) at relatively low premiums, and this coverage remains constant throughout the policy duration, ensuring your family can maintain their lifestyle, pay EMIs, and handle all financial needs if something happens to you. Term insurance offers far more flexibility and value because it acts as a complete financial replacement rather than just covering a single debt. Your family receives the full sum assured regardless of your remaining home loan balance, giving them the freedom to use the money as needed - whether for EMIs, children's education, daily expenses, or other investments. Additionally, term insurance can include valuable riders like critical illness coverage, premium waivers, and life stage benefits that provide protection even while you're alive, something home loan insurance simply cannot offer. While home loan insurance may seem convenient as it's often bundled with your mortgage, the limited coverage and lack of flexibility make term insurance the smarter, more comprehensive choice for protecting your family's financial future.

The key difference between home loan insurance and term insurance lies in their life cover and tax benefits. If you’ve gone through the previous answers, you’d know the basic pros and cons of both kinds of insurance, along with their primary features. My sister is a bank manager, so I’m familiar with these terms. I would like to add a few more differences to the list. You can keep reading this answer on home loan insurance vs term insurance. 

Which is Better: Home Loan Insurance or Term Insurance?

To understand which is better, you must know the key features of both kinds. While the term insurance policy is a basic life insurance that provides a broader coverage for a certain period, home loan insurance covers the outstanding loan amount in case of an unfortunate event. I liked the detailed answer given by Yashi Pandey on the pros and cons of home insurance and term insurance. This will give you an idea on which could be better for you. Let me share some more differences between them.

Home Insurance	Term Insurance
Premium is higher since you’re required to pay a lump sum amount	Premium is lower and reasonable
Depending on loan tenure, eligible for tax deductions	Eligible for tax benefits
Provide coverage for the entire loan duration	Only for a fixed tenure of life
Add-on options are available at a higher premium	Add-on options at lower premium costs
Limited flexibility and no customisations	Offers customisations

These are some differences you should know. I’d also like to share another answer about home loan insurance which you must check at:

How Much is Home Loan Insurance?

I hope this will help you decide which is better.

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I’ve provided a detailed comparison for home loan protection plan vs term insurance to help you decide which might be better for you.

Which One is Better Home Loan Insurance or Term Insurance?

Home Loan Insurance

Purpose: Home loan insurance is designed to cover the outstanding loan amount in case of the borrower’s death or disability. This ensures that the borrower’s family is not burdened with repaying the loan.

Key Features:

1. Loan Protection: The primary benefit is that it ensures the home loan is paid off, securing the home for the borrower's family.

2. Decreasing Coverage: Typically, the coverage amount decreases over time as the loan balance reduces.

3. Tied to the Loan: This insurance is specifically linked to the home loan and usually provided by the lender.

Pros:

• Ensures that the home loan is paid off in the event of death or disability.

• Provides peace of mind knowing that the family won’t lose the home.

• Often easy to obtain and sometimes mandatory from the lender.

Cons:

• Coverage decreases over time, reflecting the reducing loan balance.

• Limited to covering the home loan and does not provide additional financial support to the family.

• Usually cannot be transferred if you refinance or switch loans.

Term Insurance

Purpose: Term insurance provides a fixed sum assured to the beneficiary in the event of the policyholder’s death within the policy term. It offers broad financial protection for various needs, including paying off debts, living expenses, and other financial goals.

Key Features:

1. Fixed Sum Assured: The coverage amount remains constant throughout the term.

2. Versatile Use: The payout can be used for any purpose, not just paying off a home loan.

3. Separate from Loans: It is not tied to any specific loan and provides broader financial security.

Pros:

• Offers a fixed sum assured that can cover a variety of financial needs, including home loans, education, and living expenses.

• Provides comprehensive financial protection to the policyholder’s family.

• The coverage amount does not decrease over time.

Cons:

• Premiums might be higher if you choose a large coverage amount.

• Requires the beneficiary to manage the payout and allocate funds appropriately.

This is the difference between home loan protection plan vs term insurance.

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Why home loan insurance is Important?

 

Choosing between home loan insurance vs term insurance requires understanding their distinct roles. So before delving into the differences, let us focus on what each of them implies.

What is a home loan insurance?

If unfavourable circumstances arise during the loan term, a house loan insurance policy guarantees to return the remaining balance to the lender. This is probably added at an additional expense to the total amount of the property loan.

What is a term insurance?

 In the event of an unexpected event, such as an unexpected death, these plans provide the policyholder's designated beneficiaries with a lump sum payment.

A term insurance policy has a set period of validity. If the insured lives out the period, no one is compensated.

Home Loan Protection Plan Vs Term Insurance?

Factors	Home loan insurance	Term insurance
Life Cover	Decreases near the conclusion of the term	In the case of early death, payable
Insurance coverage modification	No modification	Modification can be done to increase the coverage
Premium cost	High	Low
Tax benefits	Available and is dependent on loan tenure	Available and is dependent on variable tenure

To protect your house loan, you must decide between term insurance and home loan insurance. Always take suitability into account when deciding between a term plan vs home loan insurance. Before making a choice, consider premium costs, coverage, add-ons, and other aspects.

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