Is It Mandatory To Buy a Home Insurance Policy for Your Home Loan?

Home loans have fulfilled countless dreams of home ownership into reality. In addition to providing financial support, home loans also provide favorable tax advantages. However, a home loan is not a short-term commitment. It entails committing to years, sometimes decades, of repayments. Now, to answer the question: is home loan insurance mandatory; yes! If something unexpected happens to you, your family might shoulder that financial load. That's where home loan insurance steps in.

 

What is a Home Loan?

A home loan is an assistance provided by a banking institution or housing finance company. Its primary goal is to assist homeownership aspirants in acquiring or renovating an existing home. It is repaid over time with interest via installment payments known as EMIs.

 

What is Home Loan Insurance?

Home Loan Insurance acts as a shield for your family's finances during challenging times. It is frequently referred to as a protection plan for home loans. It has declining coverage, which means that as the home loan amount decreases yearly, so does the home loan insurance coverage. If the borrower dies within the loan term, the home loan security provider pays the loan amount.

 

Consider this scenario: you're gradually repaying your debt when a disaster occurs, such as your untimely passing. Now, your family is responsible for repaying the debt. If your family struggles to keep up, the bank may seize the house. That's where a home loan insurance requirement comes in. In the unfortunate case of your death or disability, rather than leaving your family to deal with the debt, the insurance company comes in and handles it.

 

Benefits of Home Loan Insurance

Take a look below to discover why purchasing home loan insurance might be a wise decision:

 

1. Bundled with Your Home Loan: While it is not mandatory insurance for home loan India, lenders typically offer various home loan protection plans when you take one. This means you can quickly get coverage alongside your loan approval.

 

2. Simplified Premium Payments: Home loan protection plans work much like term insurance. You can pay a one-time premium or have it rolled into your loan amount, making it part of your regular EMIs. For instance, if your loan is ₹35 lakh and the premium is ₹2 lakh, if you can't pay upfront, it gets added to your loan, making it ₹37 lakh, paid off gradually.

 

3. Family Security: If the breadwinner unexpectedly dies, the family is left with the loan burden. Without insurance, the bank could seize the house or collateral. But with home loan protection, the family can claim the coverage, ensuring they're not left financially stranded.

 

4. Extra Protections: With a home loan protection plan, you may grab the option of adding coverage for permanent disability, serious illness, and job loss. This will protect you in tragic events such as your death or if you get significant sickness. The insurance will cover your overdue loan installment.

 

5. Tax Benefits: It also gives a death benefit. For example, if you have home loan insurance and die, the funds that your family acquires are not taxed. It's like a small extra to assist them at a difficult period.

 

How Does Home Loan Insurance Differ from Term Insurance?

Home loan insurance may seem similar to term insurance, but they are not. Term insurance provides payments to your family in the event of the policyholder's death, regardless of what these funds are utilized for. However, home loan insurance only covers the balance of the home loan financed.

 

Some variables you could consider while deciding between the two are:

1. Premium Payments: A term plan needs smaller recurrent payments. Home Loan Protection Plan requires just one payment. As a result, the premium for a Home Loan Protection Plan is higher and added to the actual home loan amount. Thus, term insurance may be less expensive than a Home Loan Protection Plan.

 

2. Life Coverage: A term plan offers a predetermined level of insurance that is paid out if the policyholder dies. Beneficiaries may utilize the death benefit of term insurance to settle outstanding loans or offer financial help to the family. However, the operation of a Home Loan Protection Plan is more complex. Home Loan Protection Plan covers the total amount of the granted home loan. As a result, no more benefits or protection are provided after the loan is returned.

 

As a result, it is critical to thoroughly consider your financial demands and position while selecting the best alternative for home loan coverage.

 

Wrapping up

Even if the RBI does not demand property insurance when you apply for a home loan, it is still essential. Consider property insurance from reputed companies such as Shriram General Insurance as a safety blanket for your investment. While each bank or institute may have its own requirements, getting property insurance can give you and the bank peace of mind. Before you sign your home loan, discuss with the lender how property insurance might benefit you.

 

FAQs

1. Can property insurance be transferred to a new homeowner when a property is sold? 

You can't transfer property insurance to the new owner. The new homeowner needs to purchase their own insurance.

 

2. What is the eligibility requirement for home loans?

The customer's age, financial profile, credit history, and other financial obligations, such as personal loans, are all important factors in determining home loan eligibility.

 

3. Can I pay my property insurance in installments?

Several insurance companies provide the opportunity to make payments in installments. Check your lender before signing the deal.

 

4. What coverage does property insurance provide? 

Property insurance often covers natural catastrophes and other unforeseen situations and risks.

 

5. Are home loans required to have property insurance?

According to the RBI, property coverage is not necessary for home loans. But your bank can still ask for it.

 

6. For home loans, why do lenders need property insurance?

By paying off the remaining loan balance, it safeguards against hazards associated with property loss.