There is no place like home. It is a secure haven that everyone loves to retire to after a hard day’s work! However, in today’s scenario, a home without a loan is unthinkable for an average Indian citizen. Getting a loan means repayment starts straightaway and a good portion of the income has to be set aside for this on a monthly basis. The home does not really become your own until the loan repayment is complete.
Has the thought crossed your mind that one day you might find yourself in a situation where you may not be able to repay the loan? If something happens to you before the loan is fully repaid, the liability will naturally be transferred to your family. If the borrower is insured, the family may use the claim proceeds to settle the loan. What happens though if that money is not sufficient?
To tackle this situation general insurance companies have come up with Home Loan Protection Plans or Home Loan Shields, to prevent your family members from facing hardships if such an eventuality strikes.
How does it work?
Home loan companies have teamed up with life insurance or general insurance players to help mitigate the financial liabilities you owe them, in your absence.
A premium will be paid by you considering your loan amount, tenure and age. You can pay it as a lump sum amount or as installments clubbed along with your EMI (stands for Equated Monthly Installment). This arrangement goes with the expectation that the insurance company will repay the outstanding loan in case of an unfortunate incident like death or permanent disability etc. This ensures that the family or dependents of the deceased are not left with the liability to repay the loan.
The home loan players will do all necessary arrangements to add a shield to your loan and hand you the insurance forms. Although the insurance company asks for a one-time payment of the premium, the home loan company gives the customer an option to pay premium along with the EMI. However, this option will be slightly more expensive as you will have to pay the home loan company, the interest on the premium as well, since they have included it in your overall loan. The premium in that case, is added as monthly installments to your EMI, taking into consideration the FOIR and LTV.
A home loan protection plan is similar to a term insurance policy, except that the insurance cover is for the period of the loan and also will be equivalent to the outstanding loan amount at any given time during the loan tenure.
To claim insurance, you have to hand over the death or medical certificate to the insurance company and they will make the payments directly to the bank. If the policy is not on a reducing balance principal, the claims will be paid to the nominee of the borrower.
Many insurers have exclusions as well, which needs to be checked at the time of application. For example, if the cause of death is suicide or within a year or 45 days of the commencement of the policy, generally insurers won’t pay. However, accidental deaths will be considered in most cases.
You will be entitled to tax deductions under Section 80 C for HLPP (stands for Home Loan Shield Protection Plan) premium payments. However, if it is clubbed with your EMI, you still get the tax benefit applying the same logic of any home loan repayment, considering the premium amount under your interest portion. So whether you pay the premium at one go or along with your home loan, you will get the tax benefits.