“What on earth is ‘Home Loan Insurance’?”, thought Ashok when he heard the term for the first time. Ashok has a decent job and is happily married with two kids. He has bought a new house with Home Loan financing.
However, with the happiness of buying his home came a nagging worry.
What would happen in case of his untimely demise? Who would repay this Home Loan amount? Would the bank throw his family on the street if something were to happen to him?
He was worried about the future and that’s when a colleague suggested that he get a Home Loan insurance protection plan. Ashok was glad that there was something that could quell his fears about his Home Loan.
Here are some important points regarding Home Loan insurance, which could help you overcome the worries that Ashok was battling.
What is Home Loan insurance?
It is similar to other insurance plans which provide a risk cover against a premium. The risk covered in this case is the Home Loan’s outstanding liability in case of unforeseen circumstances like death or disability.
To put it simply, in case something happens to you, the insurance company will pay the outstanding (remaining) loan amount in full and your family will live a burden-free life.
How does Home Loan insurance work?
This policy works on the “reducing cover concept”. As the loan amount diminishes, the insurance coverage amount also keeps diminishing. For example, let us assume that you have a Home Loan amounting to Rs. 20 lakh and took insurance on your Home Loan. For the first year, the insurance company will cover the whole amount of Rs. 20 lakh. Let’s say you paid Rs. 2 Lakh in the first year, then in the second year, the insurance company would cover the remaining balance of Rs. 18 Lakhs.
Factors determining Premium
Every risk cover has a price that’s called premium. It can be a single premium or regular premium (regular premium is combined with loan amount itself). Amount of premium depends upon various factors such as the amount of loan, tenure, age and health conditions of the borrower, etc.
|Loan Amount||Larger Amount – Higher Premium (vice versa)|
|Tenure of Loan Repayment||Lengthy Tenure – Higher Premium (vice versa)|
|Age of Borrower||Older Age – Higher Premium (vice versa)|
|Medical History||Low health – Higher Premium (vice versa)|
Generally, the Home Loan insurance premium has few pitfalls such as:
- You would lose the interest on advance premium money that could be earned otherwise.
- In case you foreclose your Home Loan, then you do not get a refund on the premium.
- In case you transfer your Home Loan to some other bank, you will have to pay the transfer charges.
There is another option available for paying your premium. In case, you don’t want to pay a hefty single premium, then you could approach your lender bank to pay a premium on your behalf. That premium is surely going to add up to your loan’s installments and increases your interest cost. Most of the banks have a tie-up with insurance companies or sister concerns to sell their insurance product and some even make it compulsory as a pre-condition for a Home Loan.
Are you eligible for Home Loan insurance?
What’s your Age?
Generally, Home Loan insurance can be availed up to 60 years of age.
Different insurance has different policies with regards to health check-ups. Few companies make it compulsory after a certain age limit or if the loan amount is bigger. Health check-up depends as per the insurance company’s policies.
A death certificate is mandatory to claim the insurance amount. Medical certificate regarding disability is required if the insurance company also provides risk cover for permanent disability.
No claim for suicidal deaths
As in most policies, NO claims can be made if death is caused by suicide. Double-check the accidental death cover with the insurance company before signing up.
These are some useful points that you should be aware of while applying for Home Loan insurance. Keep in mind though that the premium you pay for this insurance is nearly three times more when compared to other insurance policies. So make an informed choice!
For complete protection, you can also consider Insurance for your Home in addition to Home Loan Insurance.