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Home Loan Insurance

Home Loan Insurance Plans

Last Updated 26th Jul 2021

  • Home loan insurance is a loan protection plan that ensures the repayment of the loan to the lender, in case of your repayment failure.
  • Insurance for home loan is beneficial for both lenders and borrowers.
  • The premium is distributed along with the principal amount, thus flexible payments.
  • The property insurance for home loans covers all borrowers in case of joint home loans.
  • The insurance plan provides tax benefits under Section 80 (C) and Section 80 (D) of the income tax Act.
  • As per IRDAI, the sum assured and policy tenure will be increased if you have availed moratorium options.
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What is Home Loan Insurance?

A home loan insurance is a protection scheme for home loan buyers that provides home loan coverage in case of unfortunate and unavoidable circumstances that may happen with you. In case of insurance on home loan, if you fail to repay the entire loan amount, the insurer clears up the outstanding balance of the borrowed home loan with the lender. These insurance plans help you deal with the unpredictability associated with human lives.

Why is Housing Loan Insurance Important?

A housing loan insurance policy covers the loan amount in case of failures of home loan repayment by you. Thus it is beneficial for both the lender and the borrower.

  • Importance of Home Loan Insurance for Lenders - Home loan insurance policy is important for lenders. Banks and NBFCs earn a lot through home loan interest rates and they don’t want to lose their money when you are unable to pay. Failure on your part, hampers the lender's regular sources of income. Thus, home loan insurance is ideal for lenders, because in any case, banks receive the expected funds.
  • Importance of Home Loan Insurance for Borrowers - Home Loan insurance is important for you because it ensures that in case of failure of repayment of the loan, the insurer will pay back the loan on your behalf. In that case, the home loan won't create a burden in times of financial crisis over your family members in your absence. Note that, a home loan is a secured loan which gives the lender a right to acquire the pledged property incase of inability to pay the loan. However, with home loan insurance, you wont lose the ownership of the house, even when you fail to repay it.

Types of Insurance Cover for a Home Loan

There are three types of insurance cover for home loans, namely the Level cover plan, Hybrid cover Plan and Reducing cover plan. These three types vary based on insurance coverages, as mentioned below:

  • The Level Cover plan: It is a basic insurance plan in which premiums paid towards the home loan insurance and coverage remains same throughout the period.
  • The Hybrid Cover plan: As per this home loan insurance plan, for the first year the coverage remains full then the balance amount reduces with tenure.
  • The Reducing Cover plan: In case of reducing cover plan, with time the loan balance and coverage reduces, when tenure is going to end the coverage gets decreased.

What are the Salient Features of Home Loan Insurance Schemes?

It is advisable to know the features of home loan insurance plans before opting for one. These are listed below:

  • One-time payment: There is only a one-time premium amount to be paid and not multiple premium requirements on insurance against home loans. However, payments of home loan insurance premiums are paid in accordance with the EMIs. Thus, the premium amount is distributed in monthly payments, just like the principal loan amount.
  • Implications on Balance Transfers: In the case of home loan balance transfers, the implications of home loan insurances might change. At times the new lender might insist on having a different home loan protection plan or might be comfortable with the previous one. Also, the home loan insurance might lapse with the balance transfer, and the insurer might ask you to start over insurance plans again. Thereby, in case of balance transfers, one should ensure restructuring the home loan insurance plans.
  • Covers Joint Home Loan Borrowers: Home loan insurance is not restricted to any particular individual in case of joint home loans. Indeed, in the case of joint loans, the insurance coverage applies to all co-applicants.

What Are The Main Benefits Of Home Loan Protection Plans?

There are multiple benefits associated with home loan protection plans. These include:

  • Security cover: The key benefit associated with a insurance cover for home loan is that it provides security coverages to both the lender and the borrower. While the lender is saved from incurring losses, you are saved from a big liability in times of financial shortcomings.
  • Tax benefits: The premium that is paid on home loan insurance provides tax to borrowers similar to that of a home loan. However, you can avail tax benefits under section 80(C) and 80 (D) of IT Act.
  • Convenience and flexibility: Home loan insurance premiums are usually charged at high prices. However, to make it easy for you, lenders, most of the time, club the premium amount with the regular EMIs. Thus, similar to the principal amount borrowed, the premium is also paid in installments, which makes it convenient for home loan borrowers.
  • Inclusive to Add-ons: Housing loan insurance policies are very inclusive in nature when it comes to enhancing the cover benefits. For instance, home loan insurance provides coverage towards various plans that include illness, sudden deaths, or unemployment. However, suicides are not covered under the home loan insurance plan. Additional benefits can be availed by opting for term insurance for home loans.

Difference between Housing Loan Insurance and Home Insurance

Home loan insurance is different from home insurance. The following table lists out the differences between the two.

Home Loan Insurance Home Insurance

Home loan insurance can be bought only when you have an ongoing home loan or is applying for a new housing loan.

Regular home insurance can be bought anytime as long as you own a house.

Home loan insurance lasts until the end of the loan tenure.

Home insurance ends when the opted tenure ends. It can be opted for up to 30 years.

A home loan insurance helps you repay your loan amount in case of his or her inability to do so.

Home insurance provides coverage to your house if any damage occurs like that of thefts, fire, floods, burglaries, etc.

Examples of home loan insurance: HDFC Life Home Loan Protection Plan, SBI Life Saral Shield, etc.

Examples of Home insurance: HDFC Ergo, Bajaj Allianz, SBI Long Term Home Insurance Policy, etc.

List of Top Home Loan Insurance Companies

Following are companies who offers insurance on home loan:

  • HDFC
  • SBI
  • ICICI

FAQs

Is it mandatory to buy insurance for a home loan?

It is not mandatory to buy insurance for home loans. However, some lenders might insist you to buy one, to ensure repayment of home loans. Opting for home loan insurance is an individual choice, but is beneficial for both lenders and borrowers.

How much is insurance on a home loan?

The insurance on a home loan is different with every lender or insurance company. Also, the amount is based on the loan amount of a borrower. Further, it also depends upon the type of home loan insurance opted by you.

How does home loan insurance work?

Home loan insurance works as a protection plan for your home loan. There is a one-time premium charged in home loan insurance, that is distributed as per EMIs. In case of failure of repayment, the insurer pays the loan amount on behalf of the insured.

What is the Home Loan Protection Plan?

Home loan protection plan is an insurance scheme, under which the insurer commits towards the loan responsibilities when you fail to meet them due to any unforeseen reason.

Is property insurance mandatory for home loans as per RBI?

There are no compulsions from RBI for borrowers to go for home loan insurance. A lender may advise, but the choice to opt for the loan insurance rests with the borrower.

What are the popular home loan insurance plans?

Insurers provide many home loan insurance plans. Some of the best home loan protection plans include SBI Life- Rinn Raksha, SBI Life Smart Shield, SBI Life Saral Shield, and HDFC Life Home Loan Protection Plan.

Is Home Loan protection insurance tax deductible?

There are some tax implications on home loan protection plans. A borrower can claim tax deductions on the premiums up to ₹ 1.50 Lakh under Section 80 (C) of the income tax act.


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