Key Information About Home Insurance Before Buying Home

What is Home Insurance or Home Loan Insurance?

Home Insurance, also known as Home Loan Protection Plan (HLPP) is a plan given by almost every financial institution in which the lender will square off the outstanding or balance home loan amount of the borrower with the lender or bank, if there is a condition of sudden incidents that may include death of the borrower. In simple terms, it is known as an insurance plan under which the insurance company squares off the balance amount of home loan with banks, NDFCs or Housing Finance Companies, in the case of the death of loan borrowers. The Home Loan Insurance term is normally the same as the Home Loan term. By taking the Home Loan Insurance the borrower is reassured that even after his/her death, his/her family members will not be forced to repay the home loan or vacate the premises because of the non-payment of the home loan amount.

What are the benefits of Home Loan Insurance?

• Home loan insurance gives lump sum amount compensation which can be further utilised to repay the outstanding home loan.
• Under Section 80C & 80D, the borrower receives the tax benefit from the home loan.
• By paying an extra premium, medical conditions like disability and critical diseases can also be covered in the home loan insurance plan.
• Under a joint home loan insurance, single home loan insurance can cover all the borrowers.
• The borrower has the flexibility to reimburse the premium which is single/whole payment premium or insurance amount can be settled in the total loan amount and can be paid on a yearly basis.
• Borrowers have the choice of switching insurance premium into the amount that can be added to the home loan EMIs.

Is Home Insurance Mandatory For Home Loans?

Home loan borrowers are often misled by their bankers or moneylender and are communicated into buying home loan insurance policy. Some of the finance companies name these products or policies as mandatory and often push their buyers or customers to pay extra for the premium. However, It is not mandatory to buy home loan protection plans. Neither the law nor the regulatory authorities such as the Reserve Bank Of India (RBI) or Insurance Regulatory and Development Authority of India (IRDAI) have made it compulsory under the home loan protection plan with a loan. Buying an insurance policy is the one and only responsibility of the buyer and borrowers cannot be forced to buy such plans. It only gives extra safety to your property but it is not compulsory.

How Does Home Loan Insurance Work?

Home loan insurance is a plan or policy that covers a borrower’s outstanding loan liability to protect the risk of loss in case he/she dies during the loan repayment term. These policies give a covering that reduces every year, as the loan amount reduces. In the case of the death of the borrower during the loan regime, the insurance company will clear up the outstanding loan with the lender bank. A home loan insurance policy could end up on the full repayment of the loan, or after the death of the borrower.

What One Should Need To Know About Home Insurance?

• You must know that what is protected under the home loan insurance policy.
• Like any other insurance policy, a premium will have to be paid on the insurance you have taken.
• Home Loan Insurance Policy does not include suicide or death under natural death.
• The insurance premium broadly depends on four conditions:
• Age: The age is basically considered as the older you are, the higher your premium for the loan.
• Amount: If you are availing Rs.50 lakh as a home loan, the premium will be higher.
• Tenure: If you are taking the home loan for a period of 20 years, you have to pay the higher premium.
• Borrower’s health record: The borrower, who is availing the home loan insurance should be medically fit. The better your health, the lower your premium.

What Is The Home Insurance Policy Eligibility?

Home loan insurance eligibility differs according to service providers. The minimum age is 18 years while the maximum age of the borrower while getting the home loan insurance is normally 50-60 years.

What Is The Process To Claim Your Home Insurance?

The insurance plan is held in the name of the borrower of the home loan. In the case of the death of the borrower, the family members of the beneficiary required to file and receive the claim amount. Once the claim is approved, the amount is directly paid to the lender or to a family member of the beneficiary. In the case of all term insurance policies, if the borrower is existing beyond the term of the policy, he does not recover the premium paid.

What Is Covered In A Basic Home Insurance Policy?

Only personal property is covered under a basic home loan insurance policy.

What Are Good Homeowners Insurance Policy?

Before availing home loan insurance policy, you must contact at least three banks or housing loan finance companies to compare coverage.

Your mortgage lender can, and perhaps will need you to have homeowners insurance. You are not appropriate to buy from a particular insurance company or bank. Rather than, compare coverage, price and customer reviews. Be sure that you are getting the right type of insurance plan and the right amount of coverage.

How Does Home Insurance Help Homeowners?

A basic homeowner’s insurance policies cover the cost of repair or reconstruction due to damage affected by disasters like fire, windstorms, hail, lightning, theft, or vandalism.

What Will Be The Premium For Home Insurance?

Premiums of Home Loan Insurance depend on three main categories that include the age of the borrower, loan tenure, loan amount and health record of the borrower.

Does home insurance get tax benefits?

Yes, if in case the premium is paid by the borrower himself/herself, then he/she is eligible for tax deduction under Sec 80C and Sec 10(10D). Under Sec 80C of the Income Tax Act, the maximum amount that can be claimed is up to Rs. 1.5 lakhs.


Source : Commonfloor Blog