Who Should Own Life Insurance for a Joint Home Loan?

2025-05-01

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Taking a joint home loan is a big financial decision, one that comes with long-term responsibilities and shared commitments. Whether you're buying a house with your spouse, a sibling, or even a business partner, splitting the cost of a home loan can make the dream of homeownership far more achievable. By combining incomes and credit scores, many people can get better loan terms and afford a bigger or better-located property than they could on their own.

But while the excitement of owning a new home takes centre stage, many joint borrowers tend to overlook one crucial aspect: life insurance plans. When co-borrowing a loan that will run for 15 to 30 years, it's essential to consider how that loan will be repaid if one of you is no longer around. Unfortunately, life is unpredictable, and if one co-borrower passes away, the surviving borrower may be left with the entire repayment burden.

Key Takeaways

Life insurance is essential for joint home loan borrowers to protect against repayment risks in case of a co-borrower’s death.
Individual life insurance policies for each borrower offer personalised coverage and dual payouts.
A joint life insurance policy is cost-effective and simpler to manage, but pays out only once.
A single policy in one borrower’s name is suitable when one person contributes significantly more to the loan.
Term insurance (level or decreasing) is the most practical and affordable option for covering home loan liabilities.

Secure Your Home Loan with the Right Life Insurance for Both Co-Borrowers

When two individuals take a joint home loan, both co-borrowers must be adequately insured to protect each other from the financial burden of outstanding loan repayments in the event of one’s untimely demise.

Ideally, each borrower should own an individual life insurance policy covering either their share or the entire loan amount, as this ensures complete protection without relying solely on a joint policy that may terminate after the first claim.

While a joint life policy can be cost-effective, especially for spouses, individual term plans provide more flexibility and better security. Ultimately, the decision should be based on each borrower's EMI contribution, relationship, and long-term financial plans. Still, the goal remains the same: to ensure the home remains a haven, not a liability, under any circumstance.

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Who Should Own the Life Insurance Policy?

Protecting your shared liability through the right life cover insurance becomes essential when you take a joint home loan. There are three common ways joint borrowers can structure their life insurance plans. Each has its distinct set of advantages, depending on the financial dynamics between the co-borrowers.

Individual Life Insurance Plans for Each Borrower: In this option, both borrowers purchase separate life insurance plans that cover their respective shares of the home loan.

Advantages:
- Customised Protection: Each borrower can choose a life cover insurance amount based on income, loan contribution, and financial responsibilities.
- Dual Payout Benefit: If both borrowers unfortunately pass away, both individual policies will pay out, ensuring the family is doubly protected.
- Extended Financial Security: These life insurance plans can be used to secure a loan and other long-term goals, such as children’s education or a spouse’s financial well-being.
- Flexible Riders and Features: Each borrower can tailor their plan with add-ons like critical illness cover, waiver of premium, or accidental death benefits.
- Independent Ownership: If the loan partnership ends (due to separation, business split, etc.), each policy remains valid independently.
Joint Life Insurance Plan: This is a single life insurance plan covering both borrowers. It typically pays out on the first death, and then the policy ends.

Advantages:
- Lower Premium Cost: Joint life cover insurance plans generally cost less than two individual policies, making them budget-friendly.
- Simple Administration: Managing a single premium, one policy document, and a single set of benefits reduces complexity for the policyholders.
- Aligned with Shared Liability: Since both borrowers are equally responsible for repaying the loan, one payout after the first death can clear the outstanding balance.
- Best Suited for Couples: Ideal for spouses with joint financial goals and shared responsibilities beyond the home loan.
Single Policy in One Borrower’s Name: Here, only one borrower, usually the primary income earner, buys a life insurance plan to cover the full loan amount.

Advantages:
- Cost-Effective Option: Since only one life insurance plan is purchased, the overall premium outflow is much lower than other options.
- Simplified Management: Only one policy to track, renew, and claim, making it easier for the family or nominee.
- Focused Coverage: Effective if one person contributes the majority share of the EMI or has a clear financial hierarchy.
- Faster Decision-Making: Requires fewer discussions between co-borrowers, especially in cases where one has a significantly higher financial stake.

Did You Know?

Joint life insurance policies are often more affordable than two separate individual policies, making them an amazing choice for couples.

Source: Forbes Advisor

How Much Life Cover Should You Opt For?

The minimum life cover should ideally match your outstanding loan amount, or at least your share. So, if you and your spouse are equally responsible for a ₹60 lakh loan, you should have a life insurance cover of ₹30 lakh or more.

However, it’s wise to go a step further and consider:

Future EMIs
Family expenses
Children’s education
Emergency funds

A slightly higher life cover insurance amount ensures that your family is able to not only pay off the home loan but also maintain their lifestyle in your absence.

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Term Insurance: A Practical Choice for Home Loan Protection

Among all life insurance plans, term life insurance is often the most economical and straightforward option for joint home loan borrowers. It offers coverage for relatively low premiums and is designed purely for protection, with no investment or savings component.

There are two types of term plans commonly used for home loan protection:

Level Term Plan: The cover stays the same throughout the term. Ideal if you want to cover more than just the loan (like family expenses).
Decreasing Term Plan: The cover reduces over time, just like your loan balance. It’s cheaper and suitable if your only concern is repaying the loan.

Final Thoughts

Taking a joint home loan means making a shared promise to repay and protect your dream home. But that promise should also include a plan for unforeseen events.

Whether you choose a joint policy, two individual life insurance plans, or a single policy, what matters most is that your home and your family are financially secure. Life insurance is not just a backup plan; it's a responsible and thoughtful move that reflects the seriousness of your financial commitments.

A home is more than bricks and walls. It’s your sanctuary. And securing it with the right life insurance cover ensures your loved ones can hold on to that sanctuary, no matter what the future holds.

Glossary

Joint Home Loan: A home loan taken by two or more individuals who share equal responsibility for repayment.
Term Insurance: A life insurance policy offering pure risk coverage for a fixed term.
Joint Life Insurance Plan: A single policy covering two people, usually paying out on the first death and terminating thereafter.
Home Loan Protection Plan: A specialised life insurance plan linked to your home loan amount.
Decreasing Term Plan: A term insurance variant where the coverage amount reduces over time.

FAQs

Ideally, both co-borrowers should have individual term insurance policies. This ensures that the surviving borrower has adequate funds to repay the remaining loan if either one passes away.

Not always. While joint life policies are more affordable, they typically pay out only once (first death). In contrast, individual term plans provide separate coverage, ensuring both borrowers are fully protected

Yes, you can opt for a Home Loan Protection Plan (HLPP). However, it’s often more expensive and less flexible than a regular term insurance policy, offering more coverage options for riders.

The entire responsibility falls on the surviving co-borrower, regardless of their income or contribution to the EMIs. That’s why life insurance is crucial for both borrowers.

Yes, both borrowers can claim tax deductions under Section 80C for their respective insurance premiums, provided they are paying from their incomes.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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