While on a 2 wheeler ride, you wear a helmet. Nowadays even before undertaking an overseas journey, people take travel insurance. Coming to a home, before coating the grills of your home with paint, you paint red oxide solution to it. In relevance to all these, it is interesting to know that even Home Loans come with a shield in the form of an insurance.
A Home Loan insurance is a scheme under which the insurer will settle the outstanding Home Loan amount with the lender in case of an unforeseen situation. Some of the comprehensive Home Loan insurance plans offer cover for the applicant, the house and all its contents. A borrower may fail to pay his/her debts to the Housing Finance company owing to job instability or demise and in such situations, a Home Loan insurance covers the outstanding Home Loan amount.
Broadly speaking, there are two kinds insurance available for those who wish to go for a Housing Loan;
- Term insurance: It is purchased so that all of the borrower’s liabilities and debts are taken care of
- Separate Home insurance: This insurance scheme only takes care of your Home Loan outstanding when the borrower is unable to pay it off
- Home Loan insurance Plans have their benefits as follows;
- In the unfortunate demise of the borrower, the insurer repays the outstanding loan amount to the lender
- Tax benefits can be availed under Section 80C of the Income Tax Act
- The borrower can avail add on coverage or riders to enhance his/her Home insurance Plan.
However, a Home Loan insurance or any mortgage redemption insurance plan, is said to be a part of a lender’s sales pitch when extending a sizable long-term credit such as a Home Loan. These Plans hedge the risk of loss in case the borrower dies during the loan term, especially an unsecured loan.
You may note that purchasing a Home Loan Insurance is not mandatory. However, when you apply for a Home Loan it is advised that you consider Home Loan insurance as well.
A Home Loan insurance comes as a shield, as the way a helmet does. Just as it is important to read the documents thoroughly before choosing a Home Loan lender, it is equally important to read and analyse the terms and conditions set by a Home Loan Insurance Company when you go for it.