- A home loan is one of the most important loans for any individual who wishes to get a house
- A term plan can act as a backup to cover your home loan when you are not there
- Plan your coverage meticulouslyThe pay out of a term life insurance can be used to settle the outstanding home loan amount and other financial liabilities
For most of us, owning a home is a key financial milestone that warrants years of savings, a stable income, and long-term financial planning. The astronomical real estate prices, especially in the metros and major towns, have compelled buyers to avail housing loans to fulfill their dream of owning a house.
Lenders usually finance up to 80% the cost of the property, while the remaining 20% is paid by the borrower as down payment. In addition, there are several add-on expenses related to registration, stamp duty, society transfer charges, interiors, and decor, etc. Prudent financial planning suggests that the loan Equated Monthly Instalments (EMIs) should not exceed 50% of the borrower’s monthly income. This helps ensure that your budget is not stretched thin and you are able to comfortably meet your monthly household expenses.
Why Should One Cover Home Loans?
Home loans are long-term contracts, usually stretching up to 20 - 25 years. The arrangement is based on the fundamental assumption that you will be working throughout the loan repayment period and there will be a regular income. However, life is uncertain. In case of an unforeseen event that cuts off the regular income the burden of EMIs might become a financial burden to your family. A home loan of ₹ 30 lakh, for example, availed at 8.3% interest for 20 years will put a commitment of over ₹ 25,000 to be paid in the form of EMI.
That is why covering the loan is highly recommended. In case of an early demise of the borrower, the proceeds from a life insurance plan forms a shield that protects your family by helping them pay-off the outstanding home loan.
Here are some more compelling reasons to consider term life insurance especially if you have availed or are planning to avail a home loan:
● A Large Cover For A Small Premium
If you have a home loan, you should consider getting an equivalent life cover. Term life insurance, being a pure protection plan, is one of the most affordable life insurance plans that can give you a large cover. By paying a small premium, you can avail the cover that will bring you peace of mind and protect your family in case of an eventuality.
● Comes With Fixed Benefit
Several lenders offer life insurance cover that works as a home loan protection plan. Their cover is relative to the loan repayment schedule. As you keep on paying and the outstanding principal amount reduces, so does the life cover. Their purpose is to secure the loan, not your life!
However, unlike a loan protection plan, the sum assured for a term life insurance plan remains fixed throughout the policy. The pay-out can then be used for repayment of not just the home loan, but also to meet other financial obligations by your family in your absence.
● Supports During Home Loan Transfer
When you avail a term life insurance cover from a life insurance company, the benefits stay with you irrespective of the lender. Even if you decide to transfer your home loan from one lender to another, your life cover remains intact and you do not need to re-apply for the same. Even after the loan term is completed, the family can continue to enjoy the coverage offered by a life insurance policy. This works as a safeguard for any other loans, liabilities, outstanding or financial goals.