Purchasing a home is no less than a dream for every individual. However, this big dream is accompanied by the burden of a huge home loan. The heavy instalments, spanning over a long duration, affect the overall planning of an individual.
To combat this burden, banks offer home loan insurance along with the housing loan. Let us explore home loan insurance benefits, features, and top plans in 2024.
What is home loan insurance?
The purchase of a house usually accounts for one of the biggest expenses in an individual’s life. Moreover, such huge expenses can be a burden without any financial assistance. Thus, housing loans are one of the most demanded products by the majority of people in the country. As of 2023, the housing loans to GDP ratio is 12.3%.
The housing loans are usually of very long durations, which can pose a risk of any unforeseen situations. The home loan insurance plan plays a crucial role in combating such risks. A home loan insurance plan or a home protection plan can be categorised as a life insurance policy. They protect the insurance holder’s housing loan repayment in the situation of death.
It functions like regular insurance policies. The policyholder purchases a home loan insurance plan usually while taking a housing loan and pays regular premiums. If an insurance holder dies during the loan payment duration, the policy repays the residual loan and relieves the family of the insurance holder from the debt.
The premium can be calculated in such plans with the help of a home loan insurance calculator, made available by different banks as per their policies.
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Unique features
- Premium – There is a facility to pay the home loan insurance premium in one go with a lump sum payment. Also, the insurance holders can combine this premium payment with their loan amount to pay every month.
- Time – The home loan insurance policy usually spans the tenure of the housing loan. However, that term for coverage can be increased as per the need of the insurance holder.
- Lender’s perspective – Home loan insurance benefits borrowers as well as lenders. The insurance protects lenders’ money from turning into bad debt. Lenders like banks, non-banking financial institutions (NBFCs) and other financial institutions usually offer this plan while lending housing loans to protect their balance sheets.
- Riders – The regular home loan insurance policies cover the outstanding loan in case of the death of the borrower. However, the facilities of add-on riders are available to get cover in uncertain situations. These can be for a specific period (like some months during job loss) or any event (like coverage offered if the borrower is diagnosed with any critical medical situations).
- Taxation benefit – Section 80C offers a deduction of the premium paid on the home loan insurance plan. Moreover, the interest paid on the housing loan can also be claimed as a deduction up to the limit of 2 lakh.
- Premium-added loan – Banks offer a facility to add premiums to the loan amount so that it can be paid in a lump sum without putting any burden on the family of the borrowers. However, the increased loan also increases the interest payment amount.
So, is home loan insurance mandatory?
No, home loan insurance is never mandatory. Usually, the lending institutions offer it with the loan to protect the borrower and their lending from becoming a bad debt.
The decision to buy mortgage property insurance for a home loan with the housing loan stays solely with the borrower. By assessing different factors such as medical conditions, nominees, the interest on the loan, and other debts, the borrower should decide whether to purchase the home loan insurance plan.
Calculate your home loan EMI: Home loan EMI calculator.
Home loan insurance plans in 2024
Various banks and financial institutions offer home loan protection insurance plans. Some home loan insurance plans in India are:
- HDFC Home Loan Insurance Plan
- SBI RiNnRaksha
- Kotak Mahindra
- ICICI Prudential Group Insurance
Also, read: Unlocking financial literacy tips for buying, maintaining, and selling homeownership.
Bottomline
Home loan protection plans provide security to the borrower’s family from the repayment burden in case of the policyholder’s death or any uncertain event. It is one of the most crucial yet very less known insurance plans. If the loan burden is humungous and the borrower has any critical health conditions, in such a case, the insurance plan provides the best protection.
However, the housing loan borrower is not forced to buy an insurance plan while availing a housing loan. The borrower should only opt for it after understanding the terms and conditions attached to the home loan insurance plans.
FAQ
Q1. What is the purpose of home loan insurance?
The main purpose of home loan insurance plans is to protect the borrower’s family from repayment of outstanding loans in case of untimely death. It also offers the facility of add-on riders by which the insurance holder can add conditions for repayment other than death. The policyholder’s family is protected by lump sum premium payment.
Q2. Is home loan insurance refundable?
Usually, the premiums paid for the home loan insurance are never refunded. However, as per the terms and conditions of the policy, this facility can be made for the insurance holder. Also, the credit score helps the borrowers to avail the condition (riders) of a refund of premium at the end of tenure in the policy if no claims are made.
Q3. Can I surrender my home loan insurance policy?
The insurance holder can surrender the insurance policy anytime if there is no need for protection. Also, if the loan is disbursed and the borrower does not require the insurance policy attached to it, then that policy can be surrendered to the bank. It is, as per the policyholder’s will, to continue the insurance policy or surrender it.
Q4. Can I claim home loan insurance in income tax?
The premium paid on the home loan insurance can be easily claimed as a deduction under section 80C. Moreover, if a policyholder wants to make a lump sum premium payment, it can be availed by adding it to the loan amount. The paid interest on this loan amount can also be claimed, up to 2 lakh as the deduction.
Q5. Does home loan insurance cover death?
Home loan insurance primarily covers the death of an insurance policyholder. After the insurance holder dies, the outstanding amount of the housing loan is paid by the insurance company. This safeguards the family members from the repayment burden. Moreover, the add-on riders facility helps add (other than death) uncertain events for coverage.
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