Home Loan Insurance: How It Protects Families And Finances

Home loan insurance guarantees that if the borrower dies or becomes permanently disabled, the insurer will pay the bank the outstanding amount due on the loan. This way, the borrower’s family won’t inherit the burden of the debt, nor will the borrower lose the property to foreclosure. In India, this type of insurance is typically dependent upon the loan tenor and amount.

In terms of mortgage loans, many lenders bundle this type of insurance with housing loans for the peace of mind of the borrower’s family in the event they are not able to afford to repay the equated monthly instalments (EMIs) due to some unforeseen events. However, one should remember that it is not compulsory to take such a loan.

“Home loan insurance generally protects the lender’s exposure and at the same time ensures that the borrower’s family retains ownership of the property,” says Sarita Joshi, head of health and life insurance, Probus.

Choose A Policy Tailored To Your Needs 

After buying the property, there is an option for the policyholder to pay the premium in one go or club with the EMIs, which is common practice in India. When making a selection, borrowers can go for cover that is the same as the outstanding loan or that reduces as the loan amount decreases.

Additionally, insurers offer riders such as critical illness cover, disability from accident, and job-loss cover to enhance potential financial protection. “If the borrower loses his/her job or there is a temporary interruption in income, some insurances will protect the monthly payment for a short time, giving the family a chance to become financially stable again,” says Narendra Bharindwal, president, Insurance Brokers Association of India (IBAI).

Yes, policyholders can get tax breaks on home loan insurance under Section 80C, but it is important to note that the policy must be a home loan protecting policy and not a pure term plan. Before they opt to purchase the policy, the borrowers should compare the coverage type (reducing cover vs level cover), sum assured, joint-borrower configuration, and claim settlement ratio.

What To Keep In Mind 

Here are a few key features borrowers should evaluate. “One should ensure that the policy matches the entire loan tenure. Also, check if the policy can be shifted if the loan is refinanced with another bank,” says Bharindwal. If you club your insurance premiums with your EMI, then it becomes more affordable. Some plans offer a partial refund if the loan is prepaid or closed early.