Fulfilling the dream of homeownership is a crucial goal for many. After settling down, individuals often seek to achieve this dream by securing a home loan and savings. It’s crucial not to overlook the importance of insurance protection for the home loan.
This protection is a key aspect of your financial planning. For instance, if someone takes out a loan of Rs. 10 lakh for constructing a house, they will have to pay Rs. 8,800 as their monthly EMI.
In addition to the EMI, they may also pay an additional Rs. 400 as an insurance premium. If the borrower were to pass away accidentally within a few months of taking the home loan, the insurance company would cover the outstanding loan amount, providing security and relieving the family from further installments.
This ensures that the family can retain ownership of the house without complications. For families relying solely on the husband’s income, the absence of such insurance could mean selling the house to repay the loan.
Banks offer home loan insurance policies to borrowers to prevent passing on debt to family members in case of unfortunate events.
An additional insurance premium is usually required in addition to the regular monthly installments for the home loan, although some banks also offer a one-time payment option.
How much is the home loan insurance premium?
The insurance premium varies based on the borrower’s age, the loan amount, and the repayment period. For example, if a 35-year-old individual takes a home loan of Rs. 10 lakh for a 15-year term at an interest rate of 8.7%, their EMI will be approximately Rs. 9,965. No bank currently offers home loans below an interest rate of 8.5%.
Additionally, banks may offer the insurance premium as part of the loan amount if the borrower secures a home loan’s life insurance policy.
Depending on the loan amount, this insurance premium can add approximately Rs. 150 to Rs. 200 to the monthly installment.
Insurance experts suggest obtaining insurance coverage for a Rs. 10 lakh loan at a cost of about Rs. 5 to Rs. 7 per month, with the premium increasing based on the borrower’s age.
What is the limit of insurance coverage?
As long as the home loan is repaid regularly, the insurance will cover the current outstanding loan amount in any given month.
For example, suppose a Rs. 10 lakh loan has been paid down regularly for a few years, and the outstanding balance is Rs. 4 lakhs at an unfortunate event.
In that case, the insurance company will cover the remaining loan amount. Any excess EMI paid by the borrower will be refunded to the nominee.
The insurance premium is not a burden on home loans:
The insurance premium should not be considered an additional burden. The amount paid alongside the EMI should be viewed as insurance protection costs.
Insurance companies typically provide much more compensation than the borrower pays in premiums in case of a claim.
The monthly insurance premium should be considered an essential expense, and the upfront amount paid to the bank should not be wasted.
Many individuals have other insurance policies but often do not have adequate coverage that aligns with their personal life values.
Reviewing one’s insurance policies to ensure that they are suitable for the individual’s needs is not only essential but also your responsibility. This proactive step can ensure that you are adequately protected.