Buying a dream home can be one of your major ambitions. For this purpose, you might be thinking of acquiring a home loan and focusing on sound financial planning.
If you relate to such a scenario, one thing is certain — lenders might be pushing for home loan insurance plans to cover common lending risks. These days, protection for a mortgage loan has become crucial to support your dependent family member.
In case of an unfortunate event like death or financial instability, such plans help cover the repayment expenses. However, you need to choose between a term insurance plan or a home loan coverage to stay secure.
So, which option can prove beneficial? Find out all the details in this informative article.
The concept of home loan insurance is easy to understand. When buying a new home, most individuals apply for a home loan. These funds from lenders or banking institutes can bolster your economic condition for buying purposes.
However, you need to return the loan amount as per the terms and conditions in a fixed tenure. Under normal circumstances, this process is fairly straightforward.
You pay the monthly instalments and complete all the essential formalities. Still, there are times when certain incidents can hamper your repayment cycle. In such a case, a home loan insurance plan proves beneficial.
In simple terms, home loan insurance plans are schemes that help an insurer to settle the loan amount. These plans cover all the contents of the house and facilitate the insurer to avail of certain tax benefits.
The need for home insurance arises under the following circumstances:
Overall, a home loan insurance plan also protects the lender from the risk of repayment failure.
Home loan insurance is beneficial for you to prevent unnecessary financial burdens on your dependents. In case of a job loss, accident, or death, it is impossible for the borrower to repay the loan amount.
So, a suitable insurance scheme saves the family of the borrower from such a crisis. In other words, the dependents do not become homeless as the insurance helps pay off the loan depending on the policy terms.
As a home loan borrower, you might feel that a dedicated insurance cover can prove as a straightforward solution.
However, you also have another option in the market — choosing term insurance for a home loan. Is this alternative more suitable? Find out in this section.
Simply put, a term insurance plan is a protection plan that has reasonable premium rates. These schemes offer a lump sum amount to the policyholder’s nominees in case of unforeseen circumstances like sudden demise.
A term insurance plan is active for a fixed tenure. If the insured survives the period, nobody receives the financial benefits.
Choosing term insurance can prove useful for availing of comprehensive financial coverage. In case you survive the policy tenure, it is possible to extend the scheme or buy another plan.
For home loan repayment, such plans can prove beneficial by covering one aspect of repayment failure (untimely demise). Also another reason to choose such schemes is affordable premium rates.
Here are the major benefits and limitations that you face after choosing home loan insurance plans.
Some advantages of home loan insurance make them a preferable option over term plans. Here are a few main ones.
Once you opt for suitable home loan insurance, the entire loan amount comes under the scheme. So, you have an assurance of the loan repayment at the end of the tenure.
The terms and conditions, add-ons, and other aspects of home loan insurance plans are straightforward.
Here are a couple of pointers that you should consider while choosing a home loan insurance plan.
The premium cost in the case of these plans is stable. You do not receive any benefits at any stage of the plan’s tenure.
One of the major drawbacks of these plans is the selective benefit to the lender. Your nominees do not receive the main benefits.
The home loan insurance vs term insurance comparison needs you to consider the suitability at crucial junctions. Here are the pros and cons of term insurance.
The advantages of term plans make them a popular loan repayment cover.
Term insurance plans are popular investment options due to their simple conditions and ease of processing. You do not need to file a lot of paperwork to avail of these plans.
Compared to other schemes, these insurance covers are simple for most people to understand. The terms and conditions are straightforward. So, you do not require specialised finance knowledge to understand details like premiums, tenure, and maturity.
They have low-value premiums in comparison with other schemes. So, you can consider them as cost-effective options.
You can avail yourself of tax benefits under section 80C of the Income Tax Act. So, ensure that you know the tax laws for such an advantage.
Below are two of the main cons or drawbacks of a term insurance policy.
Once a term insurance plan expires, there is no benefit to the policyholder. You need to extend the policy or invest in other schemes. The main intent of these schemes is to offer the lump sum amount only in case of the death of the policyholder.
Due to the straightforward terms, some investors do not receive other benefits from such plans. Also, the number of add-ons in these schemes is limited. Additional benefits are only part of some term insurance plans.
As a result, investors also consider other options to receive coverage for home and maintenance.
Now that you understand the home loan insurance vs term insurance comparison in simple words, it is crucial to take a glance.
This table explains the main aspects that differentiate the two available loan repayment covers. So, ensure that you assess this table before deciding on the end choice.
| Parameter | Home loan insurance | Term insurance |
|---|---|---|
| Premium cost |
High | Low |
| Life cover |
Declines at the end of the tenure |
Payable in the event of an untimely demise |
| Insurance coverage modification |
No scope for modifications |
You can increase the coverage |
| Premium difference | Increment to the loan amount |
Affordable and reasonable |
| Tax benefits |
Available (depends on loan tenure) |
Available (variable tenure) |
| Add-on rider benefits |
Costly premiums |
Some additional add-ons |
The choice of home loan insurance or term insurance is crucial for covering your home loan. For this purpose, you can explore various profitable schemes available in the market.
At PNB MetLife, you can avail yourself of term insurance plans like PNB MetLife Mera Term Plan Plus or PNB MetLife Aajeevan Suraksha Plan to get a significant life cover.
So, ensure that you secure your home loan and other economic aspects with the right schemes. Also, when choosing between a home loan insurance or a term plan, always consider its suitability. Evaluate premium rates, coverage, add-ons, and other factors before finalising the decision.
A home loan insurance cost differs from the financier and institution offering such plans. A typical cover costs ₹ 50,000 for a specialised home loan insurance.
You can pay premiums for home loan insurance on a monthly, quarterly, or annual basis. Some lenders also offer the option of a half-yearly payout to policyholders. Always consider your existing economic condition before finalising the pay-out frequency.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
PNB MetLife India Insurance Company Limited Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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Terms & condition apply, Benefits stipulated are subject to premiums paid and policies in-force. For more details on risk factors, please read the sales brochure and the terms and conditions of the policy, carefully before concluding the sale. Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details. Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time. The marks "PNB" and "MetLife" are registered trademarks of Punjab National Bank and Metropolitan Life Insurance Company, respectively. PNB MetLife India Insurance Company Limited is a licensed user of these marks. Call us Toll-free at 1-800-425-6969, Phone: 080-66006969, Website: www.pnbmetlife.com, Email: indiaservice@pnbmetlife.co.in or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra. Phone: +91-22-41790000, Fax: +91-22-41790203.
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