Q1. What is home loan insurance? Is home loan insurance and house insurance same?
Home Loan insurance or insurance on home loan supports your family in any unforeseen event by paying the outstanding loan amount. Home loan insurance is an insurance term plan provided on your home loan amount for the same tenure like your home loan. Now in India, home loan insurance is made compulsory by all the lenders while opting for the home loan. Team Loanyantra can suggest you the loan products with low home loan interest rate as well as home loan insurance low premium products.
Before that we should know that house insurance is totally different from home loan insurance. With regard to home loan insurance, you get the home loan insured whereas with house insurance, you get the structure of the house and the contents of the house insured.
Q2. How does Home loan insurance work? Will the home loan insurance cover reduces over the home loan tenure?
“A loan insurance plan covers the balance to be paid in case of the borrower’s death as per the loan schedule decided at the time of taking the policy,” says Rituraj Bhattacharya of Bajaj Allianz Life Insurance.
The home loan insurance offered by the loan cover will progressively come down as the home loan gets repaid. For instance, by the 10th year, if the loan cover would have been to be Rs 13.5 lakh. By the 14th year, it would have been reduced to about Rs 3.5 lakh.
Q3. How to pay the home loan insurance premium ?
To calculate the home loan insurance premium, primarily, the home loan interest rate is taken into account. A few companies or financial lenders also have a different rate for metropolitan and non-metro areas.
The other factors considered are, the age and medical record of the policy holder, the loan amount and the repayment period. The larger the loan amount or the repayment period, the higher the premium.
The home loan insurance premium payment can be paid at once or annually. You can either choose, 3,4,5,7 or 10 year, not exceeding 2/3rd of the loan term. For example, if you have to pay a premium of Rs.50,000 and choose to pay annually, the bank includes that premium into your loan amount and calculates the EMI. So be wise and diversify your funds.
Q4. What are the tax benefits while paying the home loan insurance premium ?
Only, if the premium is paid by you, and not by the lender, you are eligible for tax deduction under Section 80C and Section 10(10D).
If it has been paid by the lender and is part of the loan which you will repay through EMIs, it will not be possible to claim deduction.
Infact, the tax benefit is very negligible. The tax limit is Rs. 1,50,000. So, when you choose to pay annually, the premium is spread across your tenure which is added in your EMI. Understand that you don’t lose much.
Q5. What are the other options to insure your home loan?
Usually home loan insurance is compared with insurance term plans. The main advantage with term plans is they cover other financial needs along with the home loan. However, whether you opt for a home loan insurance or choose any other term insurance plan, the premium is calculated accordingly, which can be higher for higher cover.
But now in India, it is mandatory to opt for the insurance for any loan you take. So, you can only opt whether you pay the premium directly or pay the premium through EMIs.
NOTE : Why should you opt for Home loan insurance?
The solution lies with you. But, the best advantage with home loan insurance is, incase of unexpected happening to the borrower, the insurers go to the bank directly to close the loan. The family need not go around the banks or insurance companies. So, for those whose family does not have much exposure about these financial matters, it is a good decision by the lenders to make it mandatory. So, plan smart and choose the best fit.