Home Loan Cover Vs Regular Term Insurance..!

Term insurance with home loans

Buy regular term insurance that will continue even if the housing loan ends.

Lenders do not like to take risks.So, before they give you a housing loan, they will size up your income level, repayment capacity &  credit history. Even if everything is in order, they will push you to take a home loan cover along with the loan.

If something happens to you, the outstanding loan will be paid by the insurance policy.

Home loan covers are usually single premium policies.The premium is paid through the loan, so the buyer does not feel the pinch. Borrowers also have the option of buying such covers directly from the life insurer.

They need not pay the premium upfront, but can choose to pay it over a period of, say, 5 years, said Mr. Sanjeev Pujari, Chief Actuary, SBI Life.

Also, since this is offered as part of a group cover, individuals can get a high cover &  are not required to undergo medical check-ups before buying the plan.

Unlike a regular term insurance, loan insurance cover plans offer a reducing cover. As you repay the loan, the insurance cover comes down and ends when you repay the entire housing loan. This also means that if you choose to refinance the loan with another bank, you will lose the insurance benefit.

 

Besides, this cover is for the term of the loan, while in most cases a borrower pre - pays the loan.

For HDFC, the average loan tenure at the time of application is a little over 13 years. However, as the incomes of the borrowers go up, the average loan ends in less than 5 years. Why pay for a 15 year plan when you actually need the cover for 7 to 8 years.

A better option would be to buy a regular term plan when you take a loan. Even after you have repaid the home loan, the cover will continue to protect you. As the table shows, for a marginally higher premium, you can get a cover that does not diminish.

Details	Home loan cover	Regular term insurance
Regular Premium Plan	Premium Rs. 23,700  per year for 10 years	Premium Rs.11,963 per year for 15 years
Single Premium Plan	Rs.1.26 Lac	Rs.1.49 Lac
Life Cover	Equal to outstanding loan amount	Rs. 50 lac

Src: ET Wealth

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