Life Insurance For Home Loan: Types & Benefits

For most Indians, owning a home is a dream they strive to achieve. Given the skyrocketing price of houses, owning a house without a home loan is challenging.Taking a home loan creates a long-term liability that can extend to nearly three decades. Lenders grant the loan, assuming you will work throughout the loan tenure and have regular income to repay the monthly instalments. However, if something untoward happens, resulting in loss of life or income, your family must repay the loan.Having Life Insurance as a backup to cover your home loan is a good way to avoid putting the burden of loan repayment on your family members. Should you pass away before your time, the insurance payout will help them pay off the loan.

While you can opt for conventional life Insurance products for mortgage protection, other choices are available to cater to this requirement. Let’s look at some options:

Term Insurance plans

You can buy a standard term insurance policy to cover home loan liabilities. Term plans are cost-effective Life Insurance products that provide substantial life coverage for a specified period. For instance, if you opt for a return of premium plan, you can get the full premium back on the policy’s maturity. Your family can use the lump sum to repay the loans. If you already have a life insurance policy , it is prudent to get another one to cover your financial liability.

Mortgage Redemption Insurance plans

Mortgage-linked Insurance policies are specialised plans designed to protect your family from the burden of outstanding home loans in case of death. In mortgage-linked plans, your sum assured can remain fixed during the policy term or keep reducing as you repay your loan amount.It is essential to determine your requirements and consult your financial advisor, who can provide valuable guidance in selecting the right insurance option for your specific requirements.

Often, people get confused about choosing Life Insurance to get protection against home loan liabilities or the specially designed home loan protection policy –Mortgage Redemption Insurance.Life Insurance for home loans, or Mortgage Redemption Insurance, offers protection for the tenure of the home loan. Your sum assured under this policy gets linked to your loan amount. In case of your death during the loan term, the insurer pays your family the sum assured as per the loan repayment schedule so they can use it to pay off the outstanding dues.However, the sum assured with Mortgage Redemption Insurance keeps reducing as the loan amount gets repaid. So, some experts suggest purchasing a Term Insurance plan instead with ten to twenty times your annual income. This way, in the event of your unexpected demise, your family will have sufficient funds to pay off the home loan debt and have a surplus to take care of their other needs. Also Read: 5 Things To Consider When Choosing Life Insurance

Mortgage Redemption is typically a single premium plan, meaning you must make your premium payment upfront. To prevent you from the burden of making a potentially large payment as the premium, lenders often offer to bear the upfront payment while adding this premium to the total loan amount instead.For example, let’s assume you take a home loan of ₹ 20 Lakhs and opt for a Mortgage Redemption Insurance with an upfront premium of about ₹ 2 Lakhs. Now, ₹ 2 Lakhs is a big amount, and you may not have enough funds to pay it immediately. In such cases, the lender may offer to pay ₹ 1.5 Lakhs on your behalf and add it to your total loan amount instead. So, your total loan now stands at ₹ 22 Lakhs. Your monthly EMI will also include a small portion of the premium.Many people opt for mortgage plans as it is more convenient to make a single payment every month instead of separate payments for loans and premiums.

Protects your family and investment:

A Life Insurance plan for a home loan protects your investment from any untoward event, such as your demise, job loss or accident. Also, your Home Loan Insurance protects your family from the loan payment and investment loss burden.

Affordable premiums:

Your Home Loan Insurance comes at affordable premiums that you can pay as a lump sum or in instalments. Your lender may include the premium with the loan amount deducted as an EMI.

Tax Benefits:

Claim tax benefits on your home loan insurance policy , under Section 80C of the Income Tax Act. However, you may not enjoy the tax benefit if you club the premium with the loan amount in your EMIs.

EMI versus single premium:

You may pay a single premium on your Life Insurance and Home Loan as it is more viable than combining your premium with the EMI. However, experts advise that if you pay a single premium and later decide to foreclose your loan early, you will pay an expensive premium for a short period.

Porting can be tedious:

If you decide to port your loan to another lending company, transferring your home loan policy to another company can be arduous and lead to delays. Also Read: Types Of Insurance You Need In Your 20s, 30s And 40s

• Home Loan Insurance protects you and your family financially. In case of your death, it ensures that the outstanding balance of your Home Loan is covered, relieving your family from the burden of repayment.
• You can decide the maximum coverage amount based on your outstanding loan balance and your family's needs. It allows you to customise your Home Loan Insurance policy to meet your financial situation.
• Home Loan Insurance offers various premium payment options, including single premium payment or inclusion of premiums in the EMI. You can decide a payment method that best suits your financial situation and preferences.
• You can claim tax benefits for your Home Loan Insurance under section 80C of the Income Tax Act. However, under certain provisions, you may not enjoy the tax benefits. Thus, you must consult your financial adviser for details.