Home Loan Insurance, also known as mortgage insurance, is a scheme provided by banks and other financial institutions. A home loan is a long-term financial obligation that the borrower must repay over the period of the loan. Home loan insurance comes to the rescue if a borrower cannot pay EMI due to unforeseen circumstances such as death, accident, or job loss. In simple words, home loan insurance or mortgage insurance covers the borrower and ensures home loan repayment.
In this article, we will cover every detail related to Home Loan Insurance, and it is necessary for you to know it. So, stay tuned with us till the end to uncover every important aspect of Home Loan Insurance.
Why is Home Loan Insurance necessary?
Nowadays, it is common practice for many financial institutions to offer home loan insurance along with home loans. It is important to note here that no insurance law has made the purchase of home insurance along with a home loan mandatory. However, buying insurance is to your benefit, so you won’t have to worry about losing your investment and loan repayment if something goes wrong.
Why is Home Loan Insurance important for lenders?
Lenders don’t want to make their loans into bad debts. So it’s obvious they want to protect their money. Lenders require home loan insurance to protect a home loan from becoming a bad debt. The lender will lose a lot of money if the borrower dies without repaying the outstanding amount, especially if the borrower is the only one earning in the family.
Why is Home Loan Insurance important for borrowers?
Home loan insurance, as we all know, protects the home loan amount in case the borrower defaults on the loan. Such a situation may arise due to failure of the borrower’s work or sudden death. The borrower can choose between a basic plan with special add-ons and services for more coverage. Home loan insurance is important for the borrower and their family as it ensures that the borrower’s family doesn’t become homeless in the absence of the borrower.
Types of Home Loan Insurance
Financial institutions offer 3 main types of home loan insurance for loan borrowers. The plans are classified as Reducing Cover Plan, Hybrid Plan, and Level plan. The difference between the plans is:
Level Coverage Plan: The security coverage of the insured remains unchanged throughout the tenure of the loan.
Hybrid Coverage Plan: Coverage ends in the first year of the loan. It begins to decrease as the loan balance amount decreases over time.
Reducing Cover Plan: As time passes, the coverage and outstanding debt decrease.
Things to remember before buying a Home Loan Insurance policy:
Borrowers can purchase loan insurance from general insurance companies or life insurance companies.
Policies offered by general insurance companies have low premiums and must be renewed annually. Life insurance company policies provide long-term protection at a reasonable cost.
If you transfer your home loan to another lender in the future, make sure your home insurance policy complies with the new lender’s policy or change the policy to disable.
If the home loan term is extended due to an increase in interest rates, the existing insurance premium may not be sufficient to cover the loan amount.
If the home loan is paid off in advance, part of the total insurance premium is lost. To avoid this, consider an annual renewal policy instead of a one-time policy.
Do not confuse mortgage insurance with home insurance. Remember, home insurance protects your home and your belongings.
Conclusion
Buying a house is a big and long-term investment; no one can predict what will happen in the next 20-30 years. That’s why preparing for an uncertain future is a good idea. It may not be required by regulation, but you should protect your investment and your family by using home loan insurance. You can easily get in touch with any bank or NBFC’s representatives or search the market to find the best plan.
FAQs
It’s not at all mandatory to buy a home loan insurance plan. Whether you decide to purchase it or not is entirely up to you. However, you are only advised to get a house loan insurance plan to safeguard your future.
Typically, house loan insurance can be obtained while filing the loan application. It is offered by the lending company from which you are applying for the loan and is frequently included in home loans.
A few house loan insurance companies also provide home loan insurance policies with optional rider plans to improve their cover benefits. Home loan protection insurance can be combined with riders for critical or terminal illnesses, accidental deaths, unemployment, and disabilities.