For many Indians, buying a home is a dream and an important financial goal. And most people accomplish their goal of purchasing a home by availing of a home loan. Home loan is a big financial commitment, and the repayment tenure usually spans over a couple of decades.
While you want to repay the home loan as quickly as possible, imagine a situation where you are incapacitated and cannot pay the EMIs. In this case, the loan repayment burden would automatically fall on your family members. What can you do to prevent such an unfortunate incident from befalling your family? The solution is quite simple – purchase an insurance cover.
When buying an insurance policy to secure your home, you have two choices – get a home loan insurance or a term insurance policy. Term insurance assures financial security to your family against future uncertainties. In case of your demise during the policy period, your family can use the death benefit to pay off the home loan. On the other hand, home loan insurance enables your family to pay off the outstanding loan amount in the event of unfortunate incidents like your untimely demise or accident.
So, which is better, home loan insurance or term insurance? Knowing the differences between the two can help you make an informed choice.
Term insurance has the lowest premium compared to all insurance products in India. Moreover, with term insurance, you have the flexibility to choose the premium payout mode. You can pay the premium monthly, quarterly, half-yearly, or annually to suit your budget.
On the other hand, you must pay the premium in a lump sum for home loan insurance. Additionally, the premium for home loan insurance is added to the home loan amount, which is higher than term insurance.
Term insurance offers coverage for a specific tenure; it can range from 5 to 30 years or more. If you pass away during the policy period, the insurer will pay the sum assured to the nominee. The nominee can use the amount to pay off the home and other debts you may have. Thus, term insurance can help your family take care of your liabilities.
On the other hand, you must purchase home loan insurance at the time of availing the home loan. It provides coverage only for the loan repayment tenure that you choose. The policy lapses when you pay off the entire home loan amount.
The premium you pay for term insurance is eligible for tax deduction under Section 80C of the IT Act to a maximum limit of ₹1.5 lakhs in a financial year. The home loan insurance premium is also tax-deductible under Section 80C.
You can avail of the tax benefits on home loan insurance only during the home loan tenure. Whereas, with term insurance, you can enjoy tax benefits for a more extended period as long as you keep your policy active and pay the premiums diligently.
You can purchase riders or add-on coverage options with term and home loan insurance. Riders help you get coverage against specific risks that are not covered under your regular insurance policy. These add-ons enhance the insurance benefits. However, when you buy riders, you must pay an additional premium. The riders for a home loan are generally expensive than term insurance.
Thus, both home loan insurance and term insurance policies help protect your family from bearing the burden of home loan repayment. So, assess your insurance needs, financial prospects and goals to make an informed decision.