Home Loan Insurance

POSTED BY TheZionView ON February 21, 2011 7:01 pm COMMENTS (8)

I have recently taken a Home Loan. I have received the first installment from the bank and going to start my EMI from next month. I dont have dependents and have a insurance to an extend of 6L.

This home also has some investment from my father and brother of about 15% and we stay together. I would like to go for Home Loan Insurance for this incase anything happens to me ,so that my father and bro wont suffer.

What are your experience of Home Loan Insurance and which has better package for it and what are the questions i need to ask before signing for insurance?

8 replies on this article “Home Loan Insurance”

  1. prabeesh says:

    Well written article thanks for the detailed explanation

    I think i am convinced to great extend. The only high i saw was a critical illness rider attached HLPP and reducing premium. Looks like its better to go off with term plan and critical Illness insurance as another cover

  2. KM says:

    I am not aware of any policy where premium is on reducing basis for home insurance. It is mostly a single premium based policies, but you can find it out by calling up various bank branches.

    BTW when you take a policy please also check what are the terms if you want to pre-pay your home loans (will the cover ceases or continues) and what happens if you switch your home-loan to a different company.

    BTW I would still recommend taking up term plan for home loan and if you require more insurance in future (marriage/kids), you can taken up another term plan. Every life insurance term plan you take is an independent contract unlike a health insurance.

  3. prabeesh says:

    KM

    agree on the decreasing amount wont help family ,but the premium also reduces along with it(i need to check,can someone confirm?).

    Also there is a option to choose Critical illness which in case of choosing Term Insurance i need to go for another individual Policy. I can choose this since my only aim is to take of the burden my family will suffer from home loan liability.I will take term insurance once i am married and have dependents.Am i making the right decision?

  4. KM says:

    The problem with reducing SA is that you would end up getting less with home loan insurance. Think of the following scenario: You take home loan of 20L for 20 years and after paying loan for next 10 years, you end up with say 14 Lakh as outstanding balance. In the case of an unfortunate event after 10 years

    Option 1: Home Loan Scheme: your family gets 14 Lakhs which goes to the bank against home loan taken.

    Option 2: Term Insurance: your family gets 20 Lakh (assuming that is SA for term insurance), out of which 14 Lakhs goes to the bank against home loan and remaining 6 Lakhs is given to the family, which comes as additional financial bonus at unfortunate times.

    Which one you would prefer if you are no more?

    The premium difference between the two options will not be very huge over the tenure of the loan. Also the chances of unfortunate event occurring is higher at the end of loan tenure than at the initial period (BP, heart problems occur typically in 40-50 yrs of age) at which point the outstanding loan amount will be much lower.

  5. prabeesh says:

    Thanks for reply.

    I dont understand what is wrong with Home Loan Insurance ,i saw HDFC Home loan Term Assurance plan which is nothing but a glorified term plan as they say in certain review.

    Also what is wrong with decreasing SA as it would be right and i believe when the SA is reduced the premium too(i need to check that)

    Also in this plan i need to pay the premium for 2/3 of the term period. For example if i take 15L cover for 20 years ,then i need to pay premium for only 15 years the rest 5 years is cover for free( i agree the cover at that time will be low but still its a bonus.

    I want to take term insurance after marriage and dont want to have multiple term plans as i would like to maintain with 2-3 cover max from different company to reduce the risk.

    Or am i missing something here ?

  6. Atul says:

    Hi Prabeesh,

    I suggest go for pure term insurance which will cover all your liabilities including home loan. For example HDFC offers Home loan Protection Plan wherein the EMI for HLPP is clubbed with regular EMI.

    Regards

    Atul

  7. KM says:

    You need to be clear why you need to have a Home Loan Insurance. Since you do not have dependents it really does not make sense to go for insurance. In the unfortunate event of anything happening to you, the bank will sell the house and recover the dues without troubling your father/brother for the payment.

    Assuming you want to ensure that even in any unfortunate event, your house remains with your family, then you can opt for insurance.

    The problem with most home loan insurance in India are that they are on a “reducing outstanding loan amount” basis. For example, if you take a loan of 20 Lakhs and after few years you have repaid 3 Lakhs, then the insurance company will only disburse 17 Lakhs (outstanding loan amount) in unfortunate event.

    It is better to go for a term insurance rather than a home insurance. With term insurance you will get a fixed sum assured always without any reducing balance. Another advantage with term insurance is that the premiums can be paid monthly/quarterly/yearly. whereas in home loan insurance the premium is single payment upfront.

    May be I should write a post about this on my blog 🙂

    http://greenbuck.blogspot.com/

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