Protect Your Home Loan With Term Insurance Policy
Table of Contents
Household debt in India has been increasing at the rate of 13% per annum for the last five years. Most alarming was the sudden increase of household debt by more than 80% in the space of year between FY 2016-17 to FY 2017-18. As home loans are big ticket loans it makes up a large chunk of household debt. See the chart below for details.
How Much Term Plan Should You Take If You Have A Home Loan?
Safeguarding your family against the debt is the primary objective of your home loan linked term plan. Though home loan providers also offer home loan protection plans bundled with the home loan, buying an adequate amount of term insurance plan has many advantages over a home loan protection policy.
Ideally, the sum assured for your term plan for home loans should be equal to 10 times your annual income plus the amount of outstanding home loan. For example, if your annual income is 7 lakh and the outstanding home loan amount is Rs. 30 lakh, your ideal term plan assured amount should be [7 lakh x 10 = 70 lakh + 30 lakh = 1 crore]. So, a home loan linked term plan with a sum assured of Rs. 1 crore will take care of all your family’s financial needs in your absence.
Home loan protection plan vs. Home loan linked term plan
You can choose to buy a home loan protection plan (HLPP) when you take a home loan from a financial institution. However, it’s not compulsory that you buy a home loan protection plan when you take a home loan. A term plan for home loan makes more sense and is a better option for homebuyers due to the following reasons:
- Premium for a HLPP is higher compared to a home loan term plan. A HLPP is a one-time premium amount that is included with the home loan while a home loan linked term plan premium can be paid in monthly, quarterly or yearly installments.
- In case of a home loan protection plan, the coverage reduces in direct proportion to the outstanding loan. So, as the outstanding loan is paid off it reduces until it becomes zero after the loan is entirely paid off.
- In a home loan term plan, the coverage or death benefit remains the same during the entire term of the policy.
- You cannot increase the cover in a HLPP if you increase the tenure of the home loan through refinancing or balance transfer to another financial institution. There are no such hassles with a term plan.
Conclusion
Buying a term insurance plan to secure your family against the uncertainties of the future is a wise choice that you can make now. You can leave them a legacy to cherish instead of a financial burden with a good Online Term Plan which comes with options to choose between basic life cover, fixed income protection and increasing income protection.
Also read- Importance And Benefits Of Life Insurance
