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Home Loan Insurance

Highlights

  • Why need home loan?

  • How does it works?

Homeloan Sunday 13th March 2016

Home is a place where you live with the people you love. It is also a place where you build the dreams and memories. Everyone wants to buy a dream home and this is the reason why they have to make a big financial decision of taking the home loan. A large number of people are taking loans to buy the dream home from the financial institutions. But home loan is also a debt which stays with you for a very long time (usually 20 years). This is why it requires a commitment for a very long term. You need to pay the monthly instalments to repay the loan. Home loan insurance is becoming quite common these days as it covers the borrower in many ways. Here are a few things to know about it.

Why do you need home loan insurance?

When you take the home loan, you pay it off in the form of EMI or Equated Monthly Instalments for the entire tenure of the loan. Home loan is the type of liability which has to be repaid to the lender even when the borrower is not alive. This means that if the borrower dies before the end of the tenure, the liability to repay will pass over to the family members. This could mean passing a lot of burden to the family. However, if the borrower has taken the home loan insurance then the family members will be protected from the burden of repayment in case of their death; the insurance company will have to repay to the lender. 

How does home loan insurance work

The way the home loan insurance works is pretty much the same as how term insurance works. The difference between the two is that in home loan insurance, there is no fixed sum for the assured sum; instead, it is equal to the home loan amount which is still outstanding. Therefore, with the payment of monthly instalments, the amount of insurance cover for home loan insurance keeps decreasing. There are some home loan insurance policies which offer a flat cover and not the reducing cover. This means that a fixed amount will be given to the beneficiary regardless of the remaining amount of loan.

Eligibility

The criteria for eligibility of the home loan insurance are different for different companies. However, the minimum age requirement is 18 years. The upper age limit for the home loan insurance is typically 50 years. However, there are some insurance companies which also provide this insurance to people of up to 60 years. Some companies stipulate the upper age limit based on the expiry date of the policy.

Premium

The premium of the home loan insurance is determined by a number of things including the age of the borrower, amount of the home loan, tenure of the home loan, and the medical record of the borrower. The higher the age, duration and amount of loan, the higher will be the premium. If the borrower has any medical conditions, it may affect the premium amount.