[ecis2016.org] We examine the differences between a home insurance and a home loan insurance and elaborate which instrument home owners should choose and at what stage
Insurance policies allow one to secure one’s future liabilities, in the case of any unpleasant event. Home buyers are encouraged to buy both, home insurance and home loan insurance, at the time of transaction. In this article, we list the differences between the two and elaborate why investing in each is important for future security.
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What is home insurance?
Home insurance policies protect the consumer against any structural damage to the property, in the event of man-made or natural calamities. For apartments, insurers typically arrive at the value of the flat, to assure a sum. For example, for a house of 1,000 sq ft, worth Rs 2,000 per sq ft, banks would offer a cover of Rs 20 lakhs.
What does a home insurance policy cover?
Generally, home insurance policies cover your losses in case of natural calamities such as flood, storm, earthquake, etc. and man-made disasters such as fire, riot, strike, etc.
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It must be noted that home insurance policies cover only specific damages and the customer must carefully read the policy, to know what remains out of the purview of the cover. Tailor-made plans are also offered by insurance companies, to meet individual requirements.
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Note
- Sold as a part of the home loan: Home insurance policies are often sold as a part of home loans. If you apply for a home loan from public lender SBI, for example, they offer you a home protection plan, as part of the deal.
- Cheaper than home loan insurance: Home insurance policies cost less than home loan insurance policies, comparatively.
Who can take a home insurance policy?
Both, property owners and tenants, can buy home insurance.
What is home loan insurance?
A home loan insurance guarantees protection, in case the borrower is unable to meet his liabilities, because of an unforeseen situation. Home loan insurance also provides buyers with a chance to borrow a large sum, while keeping the upfront payment as low as possible. As a home loan insurance plan covers the financing institution’s risks, it may be willing to lend more than 80% of the property’s value.
Consumers have the option to choose between a one-time payment and installments, while opting for home loan insurance policies.
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The premium you pay for the home loan insurance will vary, depending on the borrower’s age, health condition and the loans’ tenure and worth.
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What cover does a home loan insurance policy offer?
Be aware that the cover under a home loan insurance plan reduces, as you repay your loan. If you have already paid Rs 10 lakhs from a home loan of Rs 50 lakhs, then, the protection plan will pay the bank only Rs 40 lakhs, in case of a mishap.
Note
- Understand your needs: These are typically third-party products and banks package them in their home loan plans. They also hard sell them often, since they earn profits on its sale. This is why it is important to see if you actually need this plan.
- Prepaying the home loan: If you plan to prepay the loan in a short tenure, buying a home loan protection plan would be a bad idea, as the protection will become null and void soon. However, buying home loan cover is a must, if you are taking the loan for a long tenure.
Tax benefits on home loan insurance
Tax deductions can be claimed under Section 80C of the Income-Tax Act, for paying the home loan insurance premium. However, the deduction cannot be claimed, if you have borrowed money from your bank to pay the premium.
FAQs
Can I insure my home loan?
Yes, a home loan borrower can take a home loan insurance policy along with the loan, to protect against unforeseen events that may make it difficult to repay the home loan.
Is it mandatory to buy insurance with home loan?
Insurance regulator IRDAI has stated that financing companies cannot deny a home loan to a borrower if they do not wish to opt for an insurance policy along with it.
What is home insurance policy?
Home insurance is a form of property insurance, where the consumer protects the consumer against losses and damages to an individual’s residence, furniture and other assets in the home, in the event of man-made or natural calamities.
Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle
