When you take out a home loan, you are basically securing that loan against your home. Failure to make repayments on the loan could, therefore, result in the home loan agency taking over your home. To ensure this doesn’t happen, you have to be certain before you commit yourself to a loan that you can afford to make the payments or the EMI’s.
So, how does one secure from this? “A life cover equal to the value of the loan or more is the best answer ! ”
What is exactly the home loan insurance plan?
A home loan or mortgage insurance plan is designed to help repay the home loan outstanding in the event of the loan-taker’s untimely death. In case of policy holder’s unfortunate death, the life insurance company will provide the sum assured to take care of the outstanding loan and save the family the burden of paying off the balance home loan.
How does the home loan insurance plan work?
Loan cover term assurance plans, as these plans are usually called, work like this: To protect a loan repayment schedule, they offer a cover that decreases as the value of the loan outstanding falls. The premium, however, remains the same for the entire duration of the cover. You only pay for the cover you need.Hence, it is a cover that reduces in line with the mortgage and expires when the mortgage is fully repaid. If, however, the policyholder were to die during the tenure of the loan, the insurance company pays the lender or nominee, a lump sum and the lender then releases the property papers to the heirs.
As the outstanding loan amount decreases as per the plan schedule, the cover too decreases over time. The lump sum that is given is, therefore, a decreasing percentage of the initial sum assured. Since this is a pure risk cover without profits, the policyholder does not get any money back if he survives the term of the policy. The cost covers only the bare risks, making it possible for insurance companies to price the policy at the bare minimum level.
So it is a very good idea to take a life insurance coverage along with your home loan to secure your loans and family from any burdens.
Inform me if you have any questions on this article or required any clarifications.