With the Government’s latest measures on tax exemptions, incentives for the real estate sector and the Reserve Bank of India’s announcement on the issue of long term bonds by banks for infrastructure financing and affordable housing, it is inevitable that you will be in an urge to buy a home as you can now look at saving more taxes on your home loans while paying lower equated monthly installments or EMIs.
Experts are of the view that demand for housing will be made affordable to some extent and this move will also pump up the demand for home loans. The move is expected to reduce EMIs of a home loan borrower by nearly 8-10%. That apart, the recent tax incentives of raising deduction on interest on home loans from Rs 1.50 lakh to Rs 2 lakh will further help the individual to boost his annual savings to nearly Rs 1 lakh.
While these are some very good moves for the masses, it is also important to insure your home loan.
Home Loan/Mortgage insurance
In case the borrower faces an unforeseen contingency, illness, death, accident or any kind of tragedy that leads to permanent disability for the home loan borrower to continue paying his dues/EMI, the home loan insurance can help his family to clear off the dues.
Banks usually cover the entire loan amount that is outstanding with them or percentage of the loan outstanding. While home loan insurance is similar to a life insurance product, the sum covered usually reduces with the reducing outstanding loan. There are some others who agree to provide cover on a flat sum, irrespective of the outstanding loan balance.
Keep in mind that since the policy is a third-party product, the bank will earn a commission for selling the plan.
Any individual who is eligible for a home loan is also eligible for home loan insurance. Your insurance premium that is broken into smaller amounts is added to your EMI. Bear in mind that while you are paying a small premium on the sum insured, you are paying an interest on the premium amount as well. The premium is calculated taking into account the total tenure of your loan, the amount and the age of the borrower. Higher the tenure, higher is the premium. Similarly, higher the age, higher is the premium amount. If an individual has touched the age of 40, it is compulsory to have a health checkup. In case there is a medical condition, the premium charged would be slightly higher.
In case of an accident or a permanent disability, members of your family must file a claim by making a written application, along with all relevant documents such as the death certificate, medical certificate and so on. Once these documents are verified, the insurer will pay the amount to the bank or to the nominee in the insurance policy.
A lot of times borrowers are in two minds if they should opt for a separate life insurance product or should they buy one that is being offered by the bank, along with the home loan. Experts note that home loan insurance is similar to any other life insurance term plan. The only difference being, instead of paying your nominee, the insurer settles the claim with the bank to close the loan on behalf of the policyholder or the home loan borrower. In a term cover, the full money will be handed over to your nominee or the legal heir, who in turn would then have to settle the loan with the bank. If there is some money left it can be used by the borrower’s family. In the case of mortgage insurance, your sum assured keeps reducing with the outstanding amount. Experts also believe that home insurance covers are costlier than the general term plans. At the same time, if you decide to transfer your home loan from one bank to another, you lose your premium paid on home loan insurance with the previous bank. So, if you could across situations when you don't need home loan insurance but then your bank keeps pestering you to buy one, think again, weigh the pros and cons of the product and then opt for it. While it is a wise decision of buying home loan insurance from your bank, it is even better to buy a term plan online where the members of your family become the beneficiaries.
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