Have you insured your home loan?

It sounds the same, you might say, but there's a difference between home insurance and home loan insurance.

The difference

When you opt for home loan insurance, you will be insuring the home loan and not your home. That is, God forbid, if something were to happen to you (borrower), home loan insurance will take care of repaying the remainder of the loan to the bank. So, the burden of paying off the loan will not fall on the shoulders of the surviving family members. It will also prevent a situation where the home may need to be given up to the bank to help loan recovery.

For instance

Raghu takes a home loan worth Rs 30 lakh for 20-year loan tenure. Raghu also takes an insurance cover for this loan. On the 18th year of his loan, Raghu meets with an untimely death. The insurance company will pay the remainder of the principal, approximately Rs 9 lakh, to the bank. Thus foreclosing the loan.

What’s my premium?

Premium for this insurance cover varies for different insurance companies. However, the basic aspects that impact the premium required to be paid include factors such as age, loan amount, loan tenure and the health of the individual taking the loan.

Usually, premium can be paid as a single payment or it can be added to the loan amount. The bank will factor this amount in the equal monthly instalment (EMI). Some insurance companies have the 'limited pay' option, which means even if the loan cover is for 20 years; you could opt to pay the premium only for a period of 10 years with the actual cover extending for the entire loan tenure.

Smart tip: You are eligible to claim tax benefits under Section 80C for the premium paid.

How does it work?

The bank, where you take the home loan, usually, has a tie-up with an insurance company that provides the insurance cover for the home loan.

The bank will take care of all the requirements on your behalf. All you need to do is merely provide a letter of consent and make the premium payment or have it added to the loan amount.

I have a joint home loan

In case of a joint home loan you can apply for a joint insurance cover. In this case, even if one of the co-borrowers dies, the remainder of the outstanding loan amount will be repaid to the bank.

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