What is loan insurance?
Sarita had been working as a BPO professional for 3 years and wanted to get a home loan for a home that was coming up on the new Expressway. She got the loan quite easily. But last year, she was made redundant since the BPO operations that she was working for unexpectantly shut shop in India and moved to China. After 6 months she was unable to make payments and lost the home.
Had Sarita got home loan insurance, she could have been saved from this problem quite easily. Home loan insurance is a concept that is catching on quite fast in India. Home loan insurance will kick in when you are unable to make the monthly instalments. This helps a person to retain their home and make the monthly payments, even when they don’t have the financial resources.
Most banks offer home loan insurance coverages. It helps those that have home loans and helps to protect the loans and the homes. Typically the insurance will kick in when a person becomes unemployed or suffers from accident or sickness. This is applicable even when there is death due to accident or sickness. These loans can be also used for protecting car loans and even personal loans.
According to the insurance coverage’s for home loans, there would be a lump sum reduction as the loan amount reduces after the payment of each instalment. Even when a joint home loan insurance coverage’s is taken, it effectively will protect an applicant as well as the co applicant. In case one person or both are facing financial difficulties due to death, diseases, unemployment or accident, the insurance company will pay for the charges.
As this is an insurance policy, you would need to pay an insurance premium for the same. There are few banks that offer this kind of service without payment of any premium.
The premium that would be charged by the banks and the insurance companies would be dependent on a number of factors that include
The loan amount
If the loan amount were big, then obviously the home loan insurance premium would also be quite high. As the loan amount increases, the bank needs to make higher payouts in case of the insured failing to make the payments.
The tenure for the loan
If the tenure for the loan were quite long, then the premium paid would also be higher.
The medical health / records of the insured
If you have no pre existing medical conditions and are in general good health, then your insurance premium for home loan insurance would be less as compared to a person, who doesn’t have good medical records or health. This is one aspect that you need to be really careful about.
When applying for a loan, check whether you meet the eligibility criteria and what are the pre-requisites for the same.
Does the insurance cover death by accident or cause or both? Will it cover for temporary disability or permanent disability?
What is the minimum loan amount for which the insurance coverage can be taken? Is there a maximum limit for the loan too?
Check whether the premium can be paid as per part of the premium amount or does it have to be paid in one instalment.
Also check whether there are any medical checkups that may be required.
The best part about the insurance coverage is that you can even get a deduction for tax under Section 80C, since this is a life insurance coverage. However if you were clubbing the premium payment with loan instalment, then you wouldn’t get any tax benefits.