Fine Print of Home Loan Insurance: A Protection for Home Loan EMIs

Buying a house is likely one of the largest purchases you will make in your lifetime. In the long run, it provides financial stability. However, unexpected events can make it somewhat difficult to own the house or maintain its ownership. This is where home loan insurance becomes relevant. Home loan insurance, along with property insurance, offers the best protection you can provide for your home and your loved ones. Here is everything you need to understand about home loan insurance and why it is important to consider one.

Functioning of Home Loan Insurance
Insurance for a home loan serves as a risk management strategy. The primary goal of the strategy is to ensure that the borrower’s dependents are not faced with the burden of repaying EMIs in their absence. In the unfortunate event of the policyholder’s death, the insurance provider will handle the EMIs. They will cover the remaining loan balance, ensuring that the ownership of the property is retained by your family. The plan also provides additional coverage aside from financial security in the event of the borrower’s death or disability. This added coverage protects against other emergencies such as damage from fire or theft.

You can opt to pay the premium for home loan insurance either in a lump sum or in regular payments. Furthermore, the premiums you pay qualify for tax deductions under Section 80C, and the policy’s death benefits are tax-exempt too.

Reviewing the Policy Details
Similar to a home insurance policy, the fundamental aspects of home loan insurance generally stay the same. However, insurance companies may provide extra features and advantages, which can set them apart. The policy can manage any unpaid loan balance in the unfortunate demise of the borrower, and this is a typical offering among various insurers. Nevertheless, an insurance company may offer coverage that includes accidental death benefits, costs related to the treatment of serious illnesses, and more. Before purchasing the policy, it is crucial to examine its various offerings and coverages to fully understand the plan.

Before obtaining the plan, you should also verify how the policy’s coverage may change if there is a modification in the loan’s interest rate. Given the current economic conditions, interest rates are rising. A higher interest rate would result in a greater repayment burden for the borrower. Therefore, it would be sensible for the home loan insurance to automatically cover the increase to accommodate the change in repayment. Make sure to check for this information in the policy’s fine print.

Inclusions and Exclusions of the Policy
Just like a home insurance policy, a home loan policy also includes both inclusions and exclusions. Inclusions are crucial for all the conditions under which your policy will function and offer protection. Conversely, exclusions encompass all the situations where you cannot make a claim on the policy.

Depending on the insurance provider and the policy you select, the lists of inclusions and exclusions may vary. It is essential to conduct thorough research to identify all significant inclusions and exclusions of the policy before making a purchase.

One aspect to verify before purchasing the policy is whether it covers disabilities caused by mental disorders as part of the coverage. Common exclusions from home loan insurance policies include pre-existing conditions such as injuries, disabilities, damages resulting from war, self-inflicted injuries, and more.

Make sure you do not end up with a policy that has an extensive list of exclusions. Instead, seek an insurance provider that provides a product with a comprehensive list of inclusions.

Important Considerations
There are several crucial factors to consider before purchasing the policy. To begin with, a home loan insurance policy is quite different from a home insurance policy. A home insurance policy is aimed at different objectives and safeguards your home and its belongings in case of unforeseen events, thus distinguishing it from a home loan insurance policy.

Some insurance providers offer standard coverage for their policies and do not account for any prepayment or changes in interest rates. This is something you should verify before acquiring the policy.

You can also investigate potential add-ons for the plan. Although not required, you may consider add-ons such as partial disability cover, critical illness cover, loss of income cover, and so on. These additional covers will enhance the robustness of your policy.

5 Reasons to Buy Home Loan Insurance
If you are still uncertain about whether to purchase a home loan insurance policy, here are some of the prominent reasons to consider obtaining one.

Protect Assets
The policy will take effect in critical situations, such as the death of the loan borrower. Without the policy, the responsibility of repaying the loan falls on the family, and if they are unable to do so, the asset or property could be seized by the bank. The policy’s coverage will ensure that your asset remains with the family.
Protect Your Family
In the borrower’s absence, it may prove quite challenging for loved ones to manage the loan and pay the EMIs. In addition to the loss of the primary income earner, the family has to deal with loan repayments. This situation is alleviated if you choose a home loan insurance plan.
Tax Benefits
The payments you make toward the policy are tax deductible according to Section 80C, and the death benefits are also not subject to tax. Therefore, this provides improved tax advantages.