Home Loan Insurance Covers: Overview of Features & How They Work?

By Mr. Anil Rego, Right Horizons

Although a house is the best gift to one's family, one surely does not want to burden them with a hefty house loan, in case of an unfortunate event.

It is important to shelter your family against such unforeseen burden. Home loan cover comes to ones rescue in such an eventuality, but often people ignore this aspect whilst availing a housing loan.

There are few common features amongst most housing loan covers. Here is an overview of the typical features &  how they work:

Anil Rego, Right Horizons

 (1) Protection against loan liability:

The very purpose of availing a home loan insurance is to have a cover for the outstanding loan liability.

Typically, the loan cover will enable the survivors to close the loan in case of an eventuality with the borrower. The cover is of reducing balance method. It would run parallel to the outstanding loan liability for which one is paying the premium.

(2) Add-on benefits:

Apart from eventuality, one can also avail protection against hospitalisation and disablement as a result of sickness / accidents. One can also have an additional rider to cover for terminal illnesses.

(3) Flexible premium payment options:

There are single premium options or / regular premium options. Typically, for any home loan cover with regular premium payment option, the premium payment term will be lower than the term of the loan.

(4) Tax benefit:

The premium paid towards your home loan cover will quality for deduction under Section 80 C, and the death benefits derived are tax ­free under Section 10 (10D).

(5) Protection against interest rate fluctuations:

Housing loans are subject to fluctuations due to interest rate movement. Some of the housing loan covers ensure that the benefit is higher than the outstanding loan irrespective of the interest rate fluctuations. An alternate to home loan cover is to increase the term cover by the outstanding loan amount.

However, this turns out to be a very crude method, considering that the loan liability would decrease over the years. However, your term cover would remain constant, thereby creating unnecessary cash outflow in the long haul.

 About the author..!

Mr. Anil Rego is CEO & founder at Right Horizons

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