mr_dutta

Most people do not understand why they should buy an insurance cover on their home loan. Well, the reason is quite straightforward.

To Protect your home loan
Home loan insurance provides cover on housing loan, just as a life insurance policy. If you were to die during the term policy, the cover would provide a lumpsum amount equal to the outstanding amount on your home loan. As the outstanding amount on the loan decreases over time, so does the cover under the policy. A home loan protection plan provides immense comfort to the customer, as it can ease some of the financial burden when a crisis strikes.

Let us consider an example. Suppose an individual took a housing loan of Rs 10 lakh for a period of 15 years. Suppose, too, that after repaying the principal amount of Rs 3 lakh, he met with an accident and died. His insurance company will pay the remaining amount of Rs 7 lakh to the housing finance company or bank that gave him the housing loan.

Premium options
One can opt for either a single premium or a regular premium while buying home loan cover. A single premium is a one-time payment, while the regular premium option comes with a choice of annual, halfyearly or quarterly payment options. In some cases, like HDFC Standard Life Insurance, one has a "limited pay" option. This means you pay the premium for only two-thirds of the total term. For example, if your home loan cover is for 15 years, you would pay premiums for only 10 years, even though the cover continues for the entire period.

Let’s see how much this cover will cost. Say, for example, that you have a Rs 15 lakh housing loan for a term of 15 years. If you choose the single premium option, a cover from HDFC Standard Life Insurance will cost you around Rs 33,270. If you choose to pay regular premiums, you would have to pay approximately Rs 6,510 for the next 10 years. As mentioned above, even though you’d pay premiums for 10 years, the cover would continue for the entire term of 15 years.

As people’s awareness on the need for credit protection increases, we see credit life products growing at least as much as the overall industry growth rate. SBI Life Insurance has covered around 6.5 lakh home loan borrowers since 2004. Around 20% of HDFC customers also opt for a home loan insurance cover.

Tax benefit
The Premium paid under the home loan insurance plan qualifies for deduction under Section 80C of the Income Tax Act, 1961. Returns are fully exempted under Section 10 (10D).

akshaya

Hello Mr. dutta

I am akshaya. Newbie to this forum. I am very happy to meet you this nice evening.

Yes. Of course, most of the people don't know why should buy an insurance cover on their home loans. Wow! Your information was fruitful. Very useful tips and guidelines given. Nice posting. It was very informative.

Thanks for your kind information.

With regards,
Akshaya.

Vaibs_smartInv

Guiding the form mem to diff school of thought:-
Is Home Insurance mandatory with Home loan??

gaurava_ag

very informative article,

I have a question here, why not banks consider Life Insurance covers of the person who is taking loan?

isn't this act like a guaranter?