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Buying a term insurance plan for a home loan may not sound like a feasible decision. You may be thinking how even a term plan and a home loan related to each other? However, a term plan is not only limited to providing a life cover.
A term plan is the purest form of life insurance. It provides financial protection at a low premium rate. If you pass away within the policy term, the plan will give the sum assured to your nominees, taking the financial burden off their shoulders.
Term plans also come with a Return of Premium option. If you outlive the policy term, all the premiums paid by you will be returned.
But how can term insurance benefit if you have a home loan?
How to Protect your Home Loan with a Term Insurance?
A home loan is a long-term commitment, and you should understand what you are committing to while taking the loan. If you are the only earning member in the family and paying the EMIs and something happens to you, the burden of paying a loan falls on your family members. If they fail to repay the loan, your home (or collaterals) may get seized.
With a term insurance plan, the remaining debt can be paid through the insurance, if something happens to you during the policy term.
Usually, the tenure of a home loan tenure is 15 to 20 years. Life does not come with any guarantee, and there is no surety it will go as per your plans. You certainly don't want your family to go through this phase. A term insurance plan is a solution to the problem.
What are the Benefits of Buying a Term Insurance for your Home Loan?
1. Protects your Family
In case something happens to you, your family will already be going through a tough time mentally. You don't want them to worry about the home loan or the next EMI or about the collateral you have kept against the home loan. A term insurance plan will be a financial assurance to your loved ones during such a time.
2. Protects your Asset
When you have a term plan for your home loan, your other assets are protected. If you don't have a term cover, your family may have to sell the assets that you would have invested for the long term.
3. Tax Benefits
The premium you pay towards your term life insurance plan is eligible for tax deduction under Section 80C of the Income Tax Act.
4. Peace of Mind
With a term plan for your home loan, you can have a peace of mind knowing if something happens to you, your family will have a financial backup.
Home Loan Protection Cover - Alternative to Term Plan for Home Loan
There is another way to protect your family if you have a home loan. You can buy a home loan protection plan. It ensures if you die, whatever the pending loan amount is taken care of by the protection cover. It will ensure your dependents do not have to be financially burdened with a home loan in your absence.
Difference between Home Loan Protection Plan and Term Insurance Plan
While applying for a home loan, banks may ask you to secure your loan through an insurance or a protection cover. However, you must weigh the pros and cons of both the instruments before opting for one.
| Parameter | Home Loan Protection Plan | Term Life Insurance |
|---|---|---|
| Feature | The insurer pays off the balance on the loan should you face an unforeseen event. | The plan provides a death benefit |
| Premium | One-time payment | Spread over years |
| Flexibility | Any change in the tenure of the home loan do not affect the coverage period. | Coverage can be modified by adding riders to the term plan. |
A home loan is one of the huge financial liabilities you may have in your life. However, given the importance of the house for your family, you do not want the asset to slip away due to a contingency.
Thus, you cover the risks using life insurance plans so that even if you pass away, your family can repay the loan and own the house.
Canara HSBC Life Insurance iSelect Smart360 Term Plan offers multiple coverage options that let you increase your sum assured with your needs. If you choose Block your Premium option, the premium rate will be blocked for 5 years and it will also allow you to increase the base sum assured by up to 100%.
Choose a protection cover that best suits your needs and aligns with your financial horizon.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.
