Buying a home is a dream shared by nearly every single Indian, and it is an important event in your life. The most frequent way to finance a home is via a home loan. But what if anything occurs to you before you repay the full loan? Your liabilities are handed down to your descendants.
In this situation, a homeowner has two choices: secure the mortgage with home loan insurance or obtain a term insurance policy. There are other factors to consider along this line. Life insurance can safeguard your family during the term of your mortgage. If you die during that period, the death benefit can be used to pay off the remaining debt.
The importance of obtaining your house loan is one of the critical components that you should not overlook. A house loan insurance, on the other hand, protects your loved ones from unforeseeable disasters by repaying the outstanding home loan. Some of the variables to consider while picking between term insurance and home loan insurance are as follows:
When compared to term insurance, premiums for a home loan protection plan are significantly higher. This is due to the fact that house loan insurance needs an upfront fee, as opposed to term insurance, where the price is spread out over the period. The premium of a home loan protection plan is included in your overall loan thus increasing your EMI respectively. Although no regulatory agency requires it, lenders often advocate for a home loan protection plan for commission, perks, and credit risk protection.
Term insurance is like an umbrella cover that can meet other liabilities and goals of your dependents, including home loans. At the same time, home loan protection plans solely cover your outstanding loan balance. The house loan insurance protects the borrower during the loan payback period. In a home loan, when the outstanding loan amount is paid off, the home loan insurance ends. Similarly, once the debt is repaid, the coverage reduces. If the borrower dies within this time period, the family members can use the loan insurance to pay off the outstanding loan balance.
Both the interest and principal components of a house loan are deductible under sections 24B and 80C of the Internal Revenue Code. Term insurance premiums are also deductible under section 80C. When comparing tax benefits, there isn’t much of a difference because the premium for home loan protection insurance is added to the entire house loan. However, the quantity of those benefits might vary depending on the loan’s lifespan and the length of your term plan.
The initial tenure of the home loan protection plan does not change if you refinance or change the term of your house loan. Similarly, you would not be able to move your insurance if you change lenders. This is not the case with term insurance policies, as insurance coverage is not contingent on the length of your house loan, and you can extend your existing sum assured to cover your home loan.
A home loan insurance policy is optional and provides security against the house loan, whereas a term insurance policy covers all of your responsibilities. To make an educated selection, weigh these rules against your requirements, aspirations, and financial prospects.