Is Insurance Compulsory For The Home Loan

Is Home Loan Insurance Mandatory?

Human life is unpredictable. Though life's uncertainty can be a reason for excitement, it can also cause problems. Home loan borrowers always wonder ‘is home loan insurance mandatory?’ They are also concerned about who will repay the loan amount if something unforeseen happens to them over time.

Borrowers never want their financial liabilities to cause worry for their loved ones in the event of their premature death. This is why home loan insurance is gaining popularity among borrowers. Home loan applications are quickly approved these days once banks confirm the legitimacy of the paperwork and determine that the applicant's credit score is good. If you want to know whether it is mandatory or not read ahead. 

What Is Home Loan Insurance?

Home Loan Insurance protects your family's finances during difficult times. It is often referred to as a home loan protection plan. If you are wondering ‘is insurance compulsory for home loan?’ Yes, it is. It has decreasing coverage, which means that as the home loan balance falls each year, so does the home loan insurance coverage. If the borrower passes within the loan term, the home loan security provider will pay the balance loan amount.

Consider that you are progressively repaying your debt when a calamity strikes, such as your unexpected death. Your family is now accountable for repaying the loan. If your family is unable to keep up, the bank may seize the home. This is when home loan insurance becomes necessary. In the sad event of your death or disability, instead of leaving your family to deal with the debt, the insurance company will step in and manage it.

Home loans have transformed countless dreams of home ownership into a reality. In addition to offering financial assistance, house loans offer favorable tax benefits. But, a home loan is not a temporary commitment. It requires making long-term, even decades-long, repayments.

Advantages of Home Loan Insurance

Take a look below to see why acquiring home loan insurance can be a good idea:

• Included With Your Home Loan

You know the answer to the question ‘Is insurance mandatory for home loan?’ But do you know why? This is because lenders often offer a variety of home loan protection plans when you buy one. This means you can acquire coverage fast after receiving loan approval.

• Simplified Premium Payments

Home loan protection plans work similarly to term insurance. You can pay a single premium or have it added to your loan amount and make it part of your regular EMIs. For example, if your loan is ₹35 lakh and the premium is ₹2 lakh, if you can't pay upfront, it would be added to your loan, making it ₹37 lakh and paid off gradually.

• Family Security

If the primary income earner dies unexpectedly, the family bears the loan load. Without insurance, the bank might seize the house or collateral. However, with home loan protection, the family can claim the coverage to ensure they are not left financially stuck.

• Additional Protections

With a home loan protection plan, you can choose to add coverage for permanent disability, catastrophic sickness, or job loss. This will safeguard you in catastrophic occurrences like your death or a serious illness. The insurance will cover your late loan payment.

• Tax Benefits

It also provides a death benefit. For example, if the policyholder dies unexpectedly, any funds that your family receives are not taxable. These funds are used to support the family during difficult times.

What Are The Various Types Of House Loan Insurance?

Generally, there are three types of home loan insurance:

• Level Cover Plan: A level cover plan ensures consistent coverage for the insured throughout the home loan's tenure.
• Hybrid cover plan: Coverage remains consistent for a set duration. However, it begins to reduce when the outstanding loan sum reduces over time.
• Reducing cover plan: As tenure increases, both coverage and loan balance decrease. 

What factors determine the premium for home loan insurance?

The premium for house loan insurance is influenced by three factors:

• Borrower age, 
• Loan tenure or amount 
• Medical history. 

Essential Factors To Consider When Purchasing Home Loan Insurance Policy.

• Loan insurance premiums and coverage vary based on policy terms and conditions. You must carefully analyze the various policies to select the one that meets your personal insurance needs.
• Home loan insurance premiums are typically a percentage of the loan amount, payable annually.
• Most home insurance policies have a maximum coverage limit equal to the loan amount borrowed.
• Purchase home loan insurance according to your age, occupation, health status, and dependent family members. 

Wrapping it Up

So, is insurance compulsory for home loan? Undoubtedly, yes! Home loan insurance is necessary to protect your family from becoming liable for repaying the debt if something unfortunate happens to you. If you want to gain the greatest value from your house loan insurance coverage plan, thoroughly analyze your requirements before purchasing it.