India Infoline News Service | Mumbai | December 26, 2014 19:16 IST | IndiaInfoline.com
The financial planners suggest the individuals to pick a term plan so as to cover the loan.
If you are finding the best way to save your home loan, then this article is for you. Here, we will discuss two options, term insurance policy, and home loan insurance.
One of the most important dreams in a person’s life is to buy his or her home. To fulfill a dream, an individual takes a home loan which puts the house on mortgage. The home remains with the lender till the time buyer doesn’t pay the complete loan amount. However, it is important to safeguard the property so that in the event of any accident the home remains with the family. The motive is achieved by a term insurance policy or home loan insurance.
The financial planners suggest the individuals to pick a term plan so as to cover the loan. However, there are other loan protection plans designed and offered by the insurance companies to take care of the outstanding home loans in the event of unforeseeable circumstances.
A loan insurance protection plan covers the balance amount to be paid in case of death of the borrower. The plan is specifically made for high-value mortgages. The premium rates are higher and depend on several factors including the loan amount, age of the borrower, the medical history of the borrower and the loan tenure.
The loan insurance cover acts as a surety to the lenders. The loan cover is bundled with the loan amount. The borrower can either pay the initial premium himself or he can get it funded from the lender. The options come with different tax implications. If the borrower pays the premium, he will be eligible for tax deduction under Section 10(10D) and Section 80C. However, if it is paid by the lender and is included in the loan amount, the borrower will not get any claim deduction.
A vanilla term insurance is a better alternative than a mortgage insurance policy. The term plans are cheaper and also provide high cover to the borrower.
The insurance provided by the loan cover will gradually reduce as the loan gets repaid. However, the insurance cover stays constant in a term plan. It will cover the outstanding home loan and will also meet the other financial requirements of the borrower’s family in case of unfortunate death.
The loan insurance is of little significance once borrower has prepaid loan. It is the same case when the sum assured declines with the time. It is the reason term plan should be considered over loan insurance.
Also, loan cover insurance is associated with a single premium option which implies that if the borrower prepays the loan amount, there will be no impact on insurance cover or premium. There will be other portability issues if borrowers want the loan to be refinanced by another lender.
In case borrower wants to increase the loan tenure due to hike in interest rates, the cover may not be sufficient to fully cover his home loan. Considering all the factors, it is clear that a term loan is better than home loan insurance.