Home Loan Insurance In India: Types, Plans, and How to Avail
A home loan is a very effective way of financing the purchase of your dream home. However, life is unpredictable and the only way we can stay abreast is through proper planning. In terms of housing, this planning can be done with the help of a home loan insurance plan.
What is a Home Loan Insurance Plan?
A home loan insurance plan is an indemnity scheme that allows the borrower of a home loan to settle the outstanding loan amount with the lender in case of the death of the borrower.
The coverage of these plans can be enhanced through rider or add-on options, if available, to provide the sum assured in case of critical illness or loss of job.
These insurance plans also help the borrower in mitigating the risk of the financial burden which may fall on them or their family due to outstanding loan EMIs.
Types of Home Loan Insurance Plans in India
There are primarily three types of home loan insurance plans –
- Level Cover Home Loan Insurance Plan
Under this type of home loan insurance plan, the insurance coverage amount remains the same throughout the entire tenure of the home loan.
- Reducing Cover Home Loan Insurance Plan
As the name suggests, the insurance coverage under this type of plan keeps on decreasing with the outstanding home loan amount.
- Hybrid Cover Home Loan Insurance Plan
This type of home loan insurance plan combines the features of the aforementioned plans. Under this type, the insurance coverage amount remains the same for the first year but starts reducing with the outstanding loan balance from the second year onwards.
Popular Home Loan Insurance Plans in India
Following are some of the most popular home loan insurance schemes currently available in the country –
- HDFC Home Loan Protection Plan – It is a reducing cover home loan insurance plan that offers the sum assured only in case of the unfortunate death of the borrower.
- ICICI Home Loan Insurance Plan – It is also a decreasing cover home loan insurance plan which comes with a tenure of up to 20 years. Under this plan, you can choose to continue the life coverage even after the closure of the home loan.
- SBI Life – RiNn Raksha Plan – It is another decreasing cover plan but comes with three premium payment terms options – single, five years, or ten years. This plan also provides additional coverage for up to two co-borrowers of the home loan, in addition to the primary loan applicant.
How to Avail a Home Loan Insurance Plan?
You can avail a home loan insurance plan from either the lender of your home loan or a different insurance provider. Generally, the former is preferred. However, it is important to note that it is not mandatory to purchase a home loan insurance plan.
Having said that, even though having a home insurance plan is not compulsory, it can come in handy in case of an unfortunate event. It can spare your loved ones and you from emotional distress and financial burden.
Why is it Important to Have a Home Loan Insurance Plan?
Following are some of the key advantages of getting a home loan insurance plan-
- Financial Protection for Family
We all know that life is uncertain and no one can predict the future. Therefore, one needs to plan the financial well-being of their family in their absence. This is exactly what a home loan insurance plan helps to do. It ensures that the family of the deceased does not carry the financial burden of home loan EMIs.
- Tax Deduction Benefits
Another important benefit offered by home loan insurance plans is that the premium payments qualify for a tax deduction under Section 80C of the Income Tax Act. Thus, along with ensuring the future financial health of your family, these plans also help safeguard your current finances.
- Peace of Mind
When you know that your family will be financially secure even in your absence, you can enjoy greater peace of mind. This is what home loan insurance plans help you achieve.
Is a Home Loan Insurance Plan the Same as a Term Insurance Plan?
No, term insurance plans are distinct from home loan insurance plans even though they are both indemnity plans. A term plan is a life insurance plan that provides a death benefit to the family of the life assured in case of their unfortunate death. The death benefit proceeds of a term plan can be used for any purpose by the nominee.
However, the compensation paid under a home loan insurance plan can only be used to settle the outstanding amount of the home loan availed by the deceased.
Frequently Asked Questions
Is there a limit on the tax benefits that can be received on the premiums of home loan insurance plans?
Yes. You can claim a tax deduction of up to ₹1.5 Lakh under Section 80C of the Income Tax Act for the premiums paid towards a home loan insurance scheme.
Do I need to undergo any medical check-ups for a home loan insurance plan?
The requirement for medical check-ups is at the discretion of the home loan insurance provider.
Does a home loan insurance plan cover deaths caused by natural calamities?
No. Home insurance plans do not pay any sum assured in case the person availing the insurance passes away due to a natural calamity such as earthquakes, floods, cyclones, etc.
Which companies provide Loan Insurance Plans?
Both general insurance and life insurance companies can provide Home Loan Insurance Plans.
Does a Home Loan Insurance plan help in case of fire or theft?
No. Home Loan Insurance plan secures the life of the borrower and not the home itself.