Summary of this article
Home loan insurance protects families by clearing outstanding loans.
Premiums are small vs. EMI; online plans are cheaper than bundled ones.
Single-premium plans cost more due to embedded interest and margins.
Annual/online protection offers flexibility and lower long-term costs.
Home loan insurance primarily covers the outstanding loan amount in case of the borrower’s death. Some policies also cover permanent disability or critical illness. In such situations, the insurer settles the outstanding loan with the lender, helping the family retain ownership of the home.
Home Loan Insurance Premiums Are A Small Portion of The EMI
Home loan insurance usually adds a small cost compared to the equated monthly instalment (EMI) paid. Depending on age, loan amount, and tenure, the cost is usually a small percentage of the EMI. “If taken as a single premium, it can be around one to three per cent of the loan amount, while the monthly protection plans might generally cost a fraction of the EMI, often less than five to seven per cent of it, depending on age, loan tenure and cover amount,” says Sarita Joshi, head of health and life insurance, Probus.
Home loan insurance premiums, just like term insurance, will vary as per multiple factors such as age, gender, smoking habits, etc. “If we take an example of, say, a 35-year-old with a one crore loan for 20 years at an interest rate of eight per cent, the EMI stands at Rs 83,644. Home loan insurance monthly premium for the same loan conditions is a mere Rs 729, which is less than one per cent of the EMI. The assumption is of a male nonsmoker,” says Varun Agarwal, head of term insurance, Policybazaar.
Single Premium Insurance May Not Be A Good Bet
“Single-premium plans offer convenience and ensure the loan is protected from day one, which many borrowers prefer. However, regular or annual premium plans provide greater flexibility and allow customers to align coverage with changing financial needs. The right choice depends on cash-flow comfort and long-term planning,” says Joshi.
However, single premium credit insurance bundled with loans is often embedded with the EMI. “Thus, customers pay interest on these premiums. Annual protection plans have no embedded interest and margins, making them up to 70 per cent cheaper than single premium offline insurance,” says Agarwal.
Online Home Loan Insurance: A Better Option
Low adoption of online home loan insurance primarily stems from a lack of awareness. Most loan buyers often end up purchasing offline insurance bundled with the loan, as they are not aware that insurance is not mandatory, which lenders often claim. Plus, loan buyers are often not well informed about the inclusions of loan insurance.
“Moreover, historically, customers have not had access to platforms that provide them an option to choose from multiple insurers as per the terms suitable to the customer, because of which they go ahead with offline offerings bundled with loans,” says Agarwal.
