Many middle-class Indians want to buy a home. A long-term house loan is often needed to realize this pricey aspiration.
Since these loans are large and last up to 30 years, the lender checks the borrower’s monthly income and loan repayment capacity. The lender wants timely EMI repayment. But no one has noticed anything unexpected. The house loan borrower may die midway through repayment.
What happens when a borrower dies without paying their mortgage? Has the lender loan recovery provisions? Or the borrower dies, closing the mortgage.
In an uncomfortable situation, the house loan agreement specifies what a borrower can do. However, the lender has two legal possibilities to reclaim its money. It can force the lender’s family to repay the loan or sell the borrower’s home.
Refolio Investments founder Santosh Joseph answered the question: what if the family can’t return the loan or doesn’t want to lose property while staying in it?
Santosh says, “When one has a home loan that is determined based on their income and they’re paying for it, which is therefore completely fixed upon the person’s income or even joint income and their ability to pay, one would like to mitigate that risk from their home ownership, and therefore one considers home loan insurance so that, if in an unfortunate event that the person paying the home loan isn’t there, the home is still secured from the insurance that will take care of the EMI outstanding.”
Home loan insurance?
Home loan insurance, also known as the Home Loan Protection Plan (HLPP), helps the family repay the loan if the borrower dies midway.
Home loan insurance types
Level Coverage
This form of cover maintains coverage throughout the loan.
Hybrid Coverage
In a hybrid cover plan, coverage is the same for the first year but decreases when the house loan balance decreases.
Cover Plan Reduction
With outstanding mortgage insurance, coverage decreases.
Can other insurance cover a home loan?
HLPPs are designed for home insurance, but term insurance can cover the same.
Term insurance might include house insurance for extra costs.
Is an HLPP different from term insurance?
Both can cover home loans, but they differ.
Term insurance covers the same amount, but HLPPs lower the total insured as the home loan is repaid.The lender receives money from the insurance company in an HLPP, while the deceased’s family receives money from term insurance to cover any loan, including home loans.
HLPPs have a one-time premium, while term insurance has monthly premiums.
Term insurance helps the family financially, and the sum insured after the policyholder’s death can be used for more than just home loan repayment.
Do HLPPs and term insurance cover health issues?
Extending HLPP coverage to include physical disabilities, terminal illnesses, fire accidents, and man-made risks is beneficial.
These health issues can now be covered in term insurance with extra premiums.
Do HLPPs and term insurance cover unemployment?
HLPP add-ons cover EMI payments for up to 6 months if your employer issues a pink slip.
This policy protects you from lender penalties for missed EMIs.
Home loan insurance reduces risk for lenders by preventing bad debt.
HLPP or term insurance?
Term insurance protects your family from many threats, according to BankBazaar.com CEO Adhil Shetty.
The home protection plan is temporary. Its only purpose is to pay your mortgage after your death. It’s usually given with a single premium packaged into your house loan, which is bad because premium payments accrue interest. Plan terminates after loan payback. There’s no gain from loan foreclosure. You may have trouble getting a refund after foreclosure.”
He says, “Term plans are flexible. It can continue after loan foreclosure. Your family may be protected from several risks, including your house loan payment after your death. Make sure you have enough coverage to safeguard your family from all known threats and that the loan payment doesn’t deplete it.”
Joseph, however, believes that HLPPs and term insurance are important and should be chosen for different reasons.
“Having two separate covers, that is, have a term cover for you, to benefit your family, and have a term cover specific to the need of the home loan,” he explains.
“Why don’t we take a huge cover that includes the home loan? Yes, but home loan coverage decreases stress, concern, and risk. I recommend keeping these two separate, buying enough coverage for yourself and your home loan liability “Joseph says.
Conclusion
house Loan Protection Plan (HLPP) insurance can help a family repay a house loan if the borrower dies midway through repayment. Home loan insurance comes in three forms: Level, Hybrid, and Reducing. HLPP and term insurance cover home loans, although the sum protected decreases with loan repayment. Health issues, unemployment, and other hazards can be covered by HLPP add-ons. BankBazaar.com CEO Adhil Shetty says term insurance covers many risks, while HLPP is more flexible and can continue after the loan is foreclosed. Joseph recommends keeping HLPP and term insurance separate for reasons including family term and home loan term.
