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Importance of Buying Home Loan Insurance When Availing a Home Loan!
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You might know that insurance acts as a safety net and covers the insured during unpredictable situations. Be it term insurance or a health insurance policy, an insurance policy is a great help to ease financial difficulties. A home loan insurance policy is no different. Experts recommend that borrowers must buy insurance while availing a housing loan.
Read on to know the importance of a home loan insurance policy.
What Is Home Loan Insurance?
A home loan insurance policy provides a financial cover when the insured is unable to repay the home loan EMIs. It takes care of the loan debt if the borrower is unable to pay the EMIs due to death, critical illnesses, loss of job or disability.
Usually, the term of the home loan insurance is equal to the tenure of the loan. In case of the death of the insured, a lump sum amount equal to the loan amount is paid to the insured nominee by terminating the policy. The sum insured reduces in the proportion of the outstanding housing loan.
Importance of Buying Home Loan Insurance while Taking a Home Loan
Lenders always have a risk of losing their money while approving a loan. A home loan insurance policy saves them from bad debts. It also assures them that even if the borrower defaults, they won't lose their money.
If the loan borrower is unable to pay the loan due to disability or illness, the home loan insurance policy pays the loan EMIs on their behalf. If the insured dies during the tenure, the family has to repay the loan. In case of a financial crunch, they can claim the insurance amount to repay the dues. Even if the loan borrower is no more, the family member can pay the loan and save the house.
Lenders can seize the property and put it for auction if the borrower fails to repay the loan EMIs. The borrower can thus lose his property and valuables. However, with a home insurance policy, the borrower can repay the loan and save his/her asset.
How to Take a Home Loan Insurance Policy?
There are two types of home loan insurance policies - Built-in insurance and standalone insurance. Often the lender offers an insurance policy along with the loan package. For this, the borrower need not contact any separate insurance company to insure the loan. If the lender has no such option, the borrower can take a standalone insurance cover from an insurance company. While lenders prefer that their borrowers have an insurance policy for a housing loan, especially when the loan amount is substantially higher, it is not mandatory to take an insurance cover.
Reserve Bank of India suggests that all home loan borrowers must have a home loan insurance policy. It safeguards the insured family from losing their property in case of any unpredictable situation and inability to repay the loan. Now that you know the importance of home loan insurance, ensure to check with your lender while you apply for home loan.
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