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Should you opt for home loan insurance or a term plan?

The actual property market is witnessing a rebound in demand after two years of the covid pandemic, with many customers seeking to purchase their dream home now. Some are even looking out for bigger homes to accommodate a work-from-home routine. Are you a type of wanting to purchase a home and in that case will you be opting for a home loan? In case it’s the latter, the subsequent query that must be addressed is: Will you be shopping for a home loan insurance or a term loan to guard you from any unexpected monetary legal responsibility.

Do observe that If you have been to buy a home with a home loan, you might want to cowl the legal responsibility with insurance equal to the loan quantity. Such legal responsibility will also be lined with a term loan. However, what you have to know is whether or not the advantages of a term loan outweighs these of a home loan insurance.

Experts say that in case your legal responsibility merely extends to your home loan, then you can contemplate shopping for home loan insurance because the sum assured decreases primarily based on the discount in excellent loan.

However, a term plan ensures safety in the direction of debt obligations in a broader means, together with the home loan and different forms of loans and liabilities.

“Home loan insurance is much like a life or term insurance plan. The solely distinction is that the home loan cowl quantity retains lowering because the loan tenure progresses,” says Sajja Praveen Chowdary, associate director, Policybazaar.com.

“For instance, let us assume you take a 1 crore loan today along with a 1 crore home loan insurance. With this, your life is covered (via home loan insurance) for 1 crore, but this amount keeps reducing every year as you pay the equated monthly instalments (EMIs) to the bank. In case of the policyholder’s death, the insurance company pays the bank the sum assured for that year. If it’s higher than the outstanding loan, the nominee gets the remaining amount; if it’s lower, the nominee has to pay the remaining amount to the bank,“ he explained.

For instance, if the insured misses paying any equated monthly instalment (EMI) in between, the outstanding loan amount will increase. Then, the home insurance policy may not cover the entire outstanding. Moreover, the nominee will have to bear such additional costs if some misfortune befalls the insured in that particular policy period.

Tax benefit: “If you have taken a housing loan and a life insurance policy (home loan insurance policy) to cover the housing loan repayment, in case of any unforeseen circumstances in the future, you can claim a tax deduction under section 80C on the premium paid for the home loan insurance, provided it is a life insurance policy (subject to compliance with other conditions like premium not exceeding 10% of capital sum assured) and not a general insurance policy covering risks like fire, earthquake, floods, job loss, etc,” stated Amarpal S. Chadha, tax associate and India Mobility Leader, EY.

Mint Take

You should examine your liabilities earlier than deciding between a home loan insurance and term insurance. A term plan is a complete cowl that gives a mounted loss of life profit which you can make the most of for any want. However, home loan insurance solely covers the excellent loan quantity. As a end result, when you repay the loan over the course of the coverage, the sum insured will decline till it’s zero.

Point to notice:

Home insurance differs from home loan insurance as the previous covers your constructing construction, belongings inside your home, or each, relying on the coverage. Typically, it protects your home and belongings from injury or loss as a consequence of pure calamity, theft, and so forth. With home loan insurance, the quantum of the duvet is linked to the loan quantity. You will get the sum assured to the extent of the loan quantity.

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