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After buying a home, one attains one of the key financial milestones in his/her life. However, the high prices of real estate especially in metro cities make it necessary for property buyers to avail of home loans for fulfilling their dream of owning a home. Most of us generally finance up to 80% of the cost of our property, whereas the remaining 20% is paid by the borrower in the form of a down payment.
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Additionally, many additional expenses are related to stamp duty, registration, interiors, society transfer charges, décor, etc. As per smart financial planning, one must not pay more than 50% of his monthly income as the EMI (Equated Monthly Instalments) of the home loan. This helps to make sure that the borrower's budget is not stretched and he/she can easily meet his/her monthly expenses. So, same as the protection of other financial expenses of the family, a person should also protect his/her home loan with the term insurance plan.
Note: Know more about what is term insurance first before reading this article.
Term Plans
Generally, home loans are long-term contracts of approximately 20 to 25 years. In this arrangement, the fundamental assumption that is made is that the borrower will be working throughout the loan repayment tenure and he/she will be getting regular income. However, we cannot predict life. In case of any unforeseen circumstances in life wherein monthly income cuts off, this EMI can become a financial burden to one's family. This is the reason covering a home loan is recommended.
In case of unfortunate death of the borrower, the proceeds from a term insurance plan can work as a shield that can protect his/her family against the financial burden of repaying the home loan. With the death benefit, the family can easily repay the remaining amount of the home loan. Here we are discussing in detail how term insurance protects home loans.
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Here are some more reasons that can tell why a term plan works as a boon to repaying a home loan:
Large Coverage at Low Premiums: The borrower must consider getting a life cover that is equivalent to his/her home loan. Being a pure protection plan, term insurance provides high coverage at very affordable rates. One can get a cover of a large amount only by paying very low premiums. This provides the borrower peace of mind that his/her family would be able to repay the home loan in case of any eventuality.
Offers Fixed Benefits: Several home loan providers offer life cover with a home loan protection policy. Their cover is directly related to the home loan repayment schedule. As one keeps on paying the EMIs, the outstanding principal value reduces, and in the same manner the life cover. The main purpose of such insurance plans is to protect the loan amount, not the life of the borrower. On the other hand, term insurance works as a savior not only in the form that it repays the loan amount, but it also provides financial protection to the family in case of the borrower's/ policyholder's absence.
A Protector at the Time of Transfer of Home Loan: When one purchases a term insurance plan from a life insurance company, the benefits of this plan remain with the policyholder despite the lender. Even if one decides to transfer his/her home loan from one lender to other, the term life cover remains intact and you do not need to re-apply the term insurance. The term insurance policy remains intact even after the completion of the loan term. In this way, a term plan protects your other loans and liabilities and other outstanding financial goals.
Note: You can easily calculate the term plan premium by using the term insurance calculator online tool.
So, the term insurance plan works as a savior not only to protect the home loan in case of the sudden demise of the policyholder during the policy term but also as a financial protector. Buy a term plan as per your expenses, loans, and liabilities, and enjoy your life.
Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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