Insurance for Home Loans Please Help!!

POSTED BY Sudarshan MS ON May 8, 2012 11:02 am COMMENTS (3)

I have taken home loan for 11 lakhs from HDFC and I am in the process of getting the loan amount from them!! I have read that the house for which I am taking loan should be insured!! I just want to know what would be the best insurance plan and should I take insurance for just the loan amount (if there is any plan like that) or should I take insurance for the entire house. Please help me out in this matter.

3 replies on this article “Insurance for Home Loans Please Help!!”

  1. Sudarshan MS says:

    @ashal… It’s an apartment

  2. Dear Sudarshan, the house in question is an apartment or an independent bunglow?



  3. You are talking about 2 things:

    1) Insurance for you:
    Insurance for you is primarily for your financial safety and also for Banks’ ‘easier’ financial safety. If 1-2 years after a loan is taken if the loan taker is no more who will close the loan. If the person’s family has access to no other funds they will be forced to leave the home. The bank will then have to put the house on auction and sell it. This is all a hassle for everyone (including the bank). So if you have an insurance in your name then the insurer will pay the outstanding loan to your bank in the case of a mishap. The fipside with taking an insurance along with your loan is that you pay the premium for the total loan taken, for all the years. If you take 11 lacs loan and lets assume for easier understanding purposes the loan term is 11 years and each year you pay off 1 lac. So after 3 years the balance may be 8 lacs only. But the premium you pay (rather prepaid at time of loan) is for whole 11 lacs. If something happens to you at that point the bank will get 8 lacs of payments and thats all. Loan will be closed and your legal heirs will get the home. The premium paid for extra coverage goes for waste.

    Instead take a separate term plan for the loan amount alone and assign it to the bank specifying it is valid until the loan is closed. In that case should something happen to you like in previous example: The Bank gets 8 lacs and your legal heirs get 3 lacs. A much better deal and you dont pay the entire home loan term premium on day 1.

    2) Insurance for the home:
    The insurance on the home itself is your problem primarily. What if there is damage due to natural disasters/vandalism etc,? You should thus insure your house for the current replacement cost every year.

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