• Signing the registration documents and possessing your home is undoubtedly one of the most coveted objectives that many of us strive for. Accompanying the immense happiness of homeownership are the duties to maintain and protect it from various risks. This is precisely where homeowner’s insurance and mortgage insurance enter the scene. Although both policies are designed to protect homeowners, they differ and serve distinct purposes. It is highly likely that you will encounter both kinds of insurance when purchasing your home. Gaining an understanding of both will assist you in the decision-making process. Here is everything you need to know regarding home insurance versus mortgage insurance.

What is mortgage insurance?

• Mortgage insurance serves as a protection for the lender and typically applies to homeowners who choose a down payment that is below 20% of the house’s value. Mortgage protection insurance is designed to shield the lender if the home buyer does not repay the loan. A mortgage insurance policy does not offer protection to the homeowner or the house from unexpected events. Instead, it protects the lender.
• For instance, if a homeowner cannot repay the loan and it results in foreclosure, the mortgage insurance will aid the lender in recouping any losses they may have experienced. Lenders often assess the LTV value or Loan-To-Value for mortgage insurance.

Is mortgage insurance required?

• As a general rule, you may be obliged to purchase mortgage insurance when you take out a mortgage loan. Typically, lenders require homeowners to obtain mortgage insurance if the down payment is less than 20%. This requirement may vary slightly depending on the lender and the loan amount you are seeking.
• Depending on your loan amount and type, your lender may even waive the requirement for mortgage insurance. Mortgage protection insurance allows lenders to reduce the risk associated with homeowners making lower down payments. It also guarantees that they are safeguarded for the entire term of the loan, even in the event of loan default.

What is homeowners insurance, is it required?

• Homeowners insurance is also referred to as house insurance, home insurance, or property insurance. This policy is designed to protect the house from potential hazards concerning the structure of the house or its contents. Homeowners in India choose home insurance to secure their property and belongings against theft, natural disasters, and various accidents.
• A comprehensive insurance policy for your home will provide coverage against common threats such as floods, earthquakes, fires, theft, etc. These dangers can damage your home, consuming its contents or household items. Choosing home insurance will ensure the protection of the house even against natural disasters. If you reside in an area vulnerable to water logging or floods, acquiring one is essential.
• A home insurance policy can also address third-party liabilities. For instance, if a person gets injured while on your property or you unintentionally damage someone else’s property, the policy will protect your interests.
• If you are a property owner, it is generally wise to purchase homeowner insurance. The policy guarantees total peace of mind, knowing that both the contents and structure are protected. In fact, it should be viewed as an investment to protect your home purchase. Since your home represents one of the largest investments you will ever make, the advantages will significantly outweigh the costs.

Does your mortgage encompass homeowners insurance?

• Your mortgage for a new house or property does not cover homeowner’s insurance. Nor is it compulsory to select one. Even the RBI and IRDAI do not enforce such regulations for a mortgage. The policy is offered separately to homeowners to protect their houses from unexpected events. If you intend to purchase a house, there are a few ways to choose homeowner’s insurance.
• You can either select a one-time payment for the policy and enjoy the benefits. Alternatively, you may choose to transform it into an EMI as well. This will guarantee that by paying a minimal amount, you can secure your home. You can investigate both options with your lender and decide on the one that appears more reasonable.

Should I Maintain Homeowners Insurance After Settling My Mortgage?

• There is no requirement for you to maintain homeowners insurance after paying off your mortgage. However, keeping the policy can be more advantageous than one might expect. Although your mortgage has concluded, the house is still present and likely holds greater value than when you purchased it. It is reasonable to persist in protecting the house.
• Home insurance in India can be relatively inexpensive if you choose it as an EMI with your mortgage. Additionally, maintaining the plan after the mortgage will ensure that you can live a worry-free life in your home. If you believe the premium is somewhat high, you can always reduce coverage a little or increase the deductibles to lower the premium.

Home insurance vs mortgage insurance

Here are several key distinctions between the policies that will assist you in better resolving the confusion between home insurance and mortgage insurance.
1. Coverage
A home insurance policy safeguards the dwelling against potential risks and damages. In contrast, mortgage insurance serves as a protective measure for the lender, ensuring their security even if a homeowner defaults.
2. Needs
A home insurance policy is not required by law but is typically purchased alongside a mortgage to protect the property. Mortgage insurance typically comes into play when a homeowner chooses a down payment that is less than 20% of the home’s value.
Both policies can be acquired as EMIs, alleviating the financial strain on the homeowner.

Conclusion

Mortgage protection insurance and home insurance may appear somewhat similar initially, yet they address entirely distinct requirements. Based on your needs, you can choose either or both of the policies. Additionally, even after completing your mortgage, it is advisable to maintain a home insurance policy for complete peace of mind.
FAQs
1. Is it mandatory to buy a home insurance policy?
No, neither the RBI nor the IRDAI requires the purchase of a home insurance policy. However, possessing a home insurance policy will provide peace of mind during ownership.
2. Should I continue with home insurance on completion of the mortgage?
Although it is not compulsory, maintaining home insurance coverage after the mortgage ends is advantageous in several ways.
3. How should I pay the premiums of the policy?
Almost all lenders will allow you to choose either a lump-sum payment for a mortgage and home insurance policy. Additionally, you can opt for equated monthly installments for the same.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.