Home loan protection Insurance

With the current, soaring real estate prices, without taking a home loan, owning a house is beyond the reach of an ordinary Indian. And banks are ready to offer home loans to make owning a house a reality. However home loans come at a  heavy cost- EMIs  comprising of principal amount plus interest. When an individual takes a home loan it is based on serious repayment calculations, and the loan tenure often runs into years and decades.

Now the question is, what if the loan borrower has an unfortunate accident in between and dies? The burden of repaying the loan falls on the family members. Most of us will have a ready answer- Loans cover Term Assurance with a sum assured amount equal to the loan amount. And most of us with home loans would have an active term assurance in our name either self started or insisted by you bank, even if the premiums are high. So far so good!

Now imagine a second scenario: what if the borrower meets with an unfortunate accident and is in a state of permanent total disablement? The borrower has lost all capabilities of working and bringing in an income. The resulting situation is a frightening reality very often. In addition to the medical cost that has to incurred on a regular basis for providing care to the invalid, the EMIs also come regularly on a monthly basis! No term assurance policy pays you money when the insured is permanently disabled.

A third scenario- in most cases, home loans are jointly taken by the spouses especially in cases where the amount is very high. The combined salary of the couple might have been a requirement for securing the said loan amount. So a second term insurance becomes a must as term insurance policies cannot be taken jointly. And the biggest head ache of term assurance is the quarterly or yearly payments that you cannot afford to miss to keep your policy active.

And another scenario is also plausible. What if the home that you purchased is destroyed fully or partially in a fire? You will still have to payback the loan amount irrespective of the fact that you no longer have a home. Yes, a fire insurance is a solution to this issue too.

So just to secure your family from the burden of a home loan, you end up taking term policies, fire policies and personal accident policies. And this means triple the cost incurred! Suppose you could combine all these benefits into one policy at one third the cost? That would be awesome! Home loan protection insurance policy does just that. This policy can be taken by banks to cover  their loan customers or by individual borrowers also.

This policy provides insurance protection to the extent of the outstanding loan amount. It covers damages to house/flat due to fire and allied perils like earthquake, lightning, flood etc. It also provides a personal accident cover to the borrower against death due to accidents, accidental loss of two limbs, two eyes or one limb and one eye, and permanent total disablement from injuries.

In the unfortunate occurrence of either of the two – fire and personal accident – the insurer would pay either the value of the property if fully destroyed or repair cost if partially damaged, and all outstanding instalments of the loan as on date  minus the defaulted amount if any in case of  accidental death and permanent total disability.

In case of joint borrowers, the second borrower can be covered on payment of a small additional premium which is far lesser that the premium required to take a second term assurance. The period of the policy is usually the same as the period of repayment of loan. The maximum policy period however is limited to 20 years. The sum insured under this policy would be the maximum  loan liability in the first 12 months. The sum insured would subsequently reduce over the period of time.

So now that you have found the perfect home loan protection cover, go ahead and enjoy the feeling of being a home owner!