India is a thriving country where individuals are rapidly climbing the economic ladder. Home is one of the most common purchases that people make when their income increases. Most of the people who want a home opt for home loan for purchase. However, the nature of a home loan is quite different from other types of financing. The average tenure of a home loan is usually 20 years or more. Hence, a home loan effectively creates a long-term liability for you and your family. Moreover, during one’s earning years, a home loan is not the only loan; There are also medium and short-term borrowings such as auto loans and credit card expenses.

India has seen a dramatic increase in household debt in recent years due to increased borrowing. Taking a home loan to buy a home is a wise move, but you should consider the repayment schedule and plan for all possibilities.

Just got a new home? Get Term Insurance!

As mentioned, home loans are often long-term contracts lasting 20 to 25 years. The basic assumption in this arrangement is that the borrower will be working and earning a steady income during the loan repayment period. However, we cannot predict the course of life. If one’s monthly income gets deducted due to unforeseen circumstances, then this EMI can become a financial hardship for his family. this is why a term plan A must for new homeowners taking a home loan.

In the event of the borrower’s untimely death, the proceeds from a term insurance plan can save their family from the financial stress of repaying the home loan. As a result, the family can repay the home loan balance with the death benefit. Let us know in detail how term insurance protects the house loan.

Home Loan and Other Liabilities

No one takes out a loan for the purpose of defaulting, but many things can go wrong during the term of the loan, especially such long-term loans. After the loan is disbursed, the borrower’s responsibilities begin. Every month, a fixed installment has to be paid, consisting of a part of the principal amount and interest. For example, if you pay Rs. 25 lakh home loan at 9% interest for a tenure of 20 years, you will pay Rs. 22,525 every month. The obligation exists until the entire debt is paid off. However, some people default during the term of the loan, such as:

• serious illness
• loss of income due to disability
• Death

As a result, the borrower’s family suffers the most when the borrower defaults on the loan due to the death of the earner. Basic term insurance against home loan can offer money for loan repayment in case of untimely death of the insured. However, you should also consider the other two prime examples of defaults. Riders can be purchased while buying term insurance to protect against loss of income due to disability or critical illness.

How can you ensure that your term plan offers financial protection against home loan?

The versatility of a term plan is one of its most important advantages. Depending on the terms and conditions of your plan, you can opt for the Sum Assured to be paid in regular installments to the nominee to replace the monthly income or as a lump sum amount.

The ideal coverage for home loan liability should be more than the amount required to provide a comfortable life for your family. Your sum insured should be at least ten times your annual salary plus the outstanding amount on your loan. The term of the policy should also be till the loan is active.

you a. Can calculate premium for desired coverage amount by using term insurance premium calculator online.

Select Decreasing Term Insurance

The sum assured of a regular term insurance policy remains constant throughout the term of the policy. Similarly, term insurance premiums are fixed for the entire policy term. However, if the goal is to buy a term plan to cover a home loan liability, a fixed sum assured may not be the best option.

The home loan outstanding amount gradually reduces as you start paying the monthly installments. Hence, there is no need to have the same insurance coverage for the tenure of the home loan. However, once a standard term insurance plan is purchased, the sum assured cannot be reduced. Hence, reducing term insurance can be a better solution to provide cover for home loan liability. With this term insurance the sum assured decreases monthly or annually till the policy expires. Premium to reduce term insurance plans are similar to traditional term insurance policies.

conclusion

The proper amount and type of insurance can help you cover the loan on your dream home. In addition, it will ensure that your family is not burdened with debt in case you die untimely. When buying term insurance online, you can opt for reducing term insurance to align the outstanding loan balance with the insurance cover.

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