Significance Of A Home Loan Insurance Or An Equivalent Insurance Policy While Taking A Home Loan

Published on: 17 December 2014

The governmentÔÇÖs latest measures on tax exemptions, incentives for the real estate sector, and the Reserve Bank of IndiaÔÇÖs announcement on the issue of long-term bonds by banks for infrastructure financing and affordable housing, it is inevitable that you will be experiencing an urge to buy a home, since you can now look at saving more taxes on your home loans while paying lower EMIs.

Experts view that demand for housing will be made largely affordable, pumping up the demand for home loans. The move is expected to reduce EMIs of a home loan borrower by approximately 8-10%. Further, the recent tax incentives of raising deduction on interest on home loans from Rs 1.50 lakh to Rs 2 lakh will further help the individual to boost his/her annual savings to nearly Rs 1 lakh.

While these are some good moves for India as a whole, it becomes important to insure your home loan.

Home loan/mortgage insurance

In case the borrower faces an unforeseen contingency, illness, death, accident, or any kind of tragedy that leads to permanent disability for the home loan borrower to continue paying his dues/EMI, the home loan insurance can help his family to clear off the dues. Banks usually cover the entire loan amount that is outstanding with them or a percentage of the loan outstanding. Although home loan insurance is similar to a life insurance product, the sum covered usually reduces with the reducing outstanding loan. There are some banks who agree to provide a cover on a flat sum, irrespective of the outstanding loan balance.

Please keep in mind that since the policy is a third-party product, the bank will earn a commission for selling the plan.

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