Buying a home is a significant financial milestone as arranging funds and performing all due diligence on a home loan and property requires a lot of patience and hard work. While selecting a lender for home loan, prospective homeowners are often offered the option of home loan insurance. Some banks give you home insurance as an option while others make it mandatory. The question then arises: Should you buy it?
Home loan insurance, also known as mortgage insurance or home loan protection plan, is designed to provide financial security to your family in the unfortunate event of your demise during the loan tenure. The basic idea is to ensure that the burden of the outstanding loan does not fall entirely on your loved ones.
Let’s find out the key aspects of home loan insurance to help you make an informed decision.
Understanding Insurance
Home loan insurance operates on a simple principle. In the event of the borrower’s demise, the insurance coverage pays off the remaining home loan amount, alleviating the financial strain on the family. It acts as a safety net, ensuring that the property remains with the family without the looming threat of foreclosure due to non-payment.
Why Consider Home Loan Insurance
Life is unpredictable, and uncertainties can arise at any time. The primary purpose of home loan insurance is to offer financial protection to your family. It ensures that they can continue to reside in the house without worrying about the mortgage. Home loan insurance mitigates the risk associated with unexpected events, such as the untimely demise of the borrower.
With home loan insurance, the outstanding loan amount is settled, allowing your family to retain ownership of the property. This continuity can be crucial in maintaining stability during challenging times.
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Factors to Consider
Cost of Premium: Before opting for home loan insurance, evaluate the cost of the premium. It is an additional expense that adds to the overall cost of your home loan. Compare various insurance plans to find one that aligns with your budget.
Existing Life Insurance: If you already have a substantial life insurance policy, you may question the necessity of home loan insurance. In such cases, assess whether your existing coverage adequately addresses the outstanding loan amount.
Policy Terms and Conditions: Thoroughly read and understand the terms and conditions of the home loan insurance policy. Be aware of any exclusions or limitations that may affect the coverage.
When to Reconsider?
Short Loan Tenure: If you have opted for a short loan tenure, the outstanding amount decreases faster. In such cases, the necessity of home loan insurance may be less pronounced.
Sufficient Savings: If you have substantial savings that can cover the outstanding loan amount in the event of your demise, you might reconsider the need for home loan insurance.
Health Conditions: Assess your health conditions. If you are in good health and have a lower likelihood of facing premature death, the urgency for home loan insurance may be reduced.
Adhil Shetty, CEO, Bankbazaar.com, says, “The decision to purchase insurance is a subjective one. It hinges on your individual circumstances, financial position, and risk tolerance. While home loan insurance offers peace of mind and financial security, it’s essential to weigh its costs against the potential benefits.”
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A careful evaluation of your financial situation and a clear understanding of the terms of the insurance policy will guide you in making an informed decision. It is essential to strike a balance between securing your house and family financially.
