The Role Of Term Insurance In Protecting Your Home Loan
Let's explore the important role term insurance plays in protecting your home loan
While you might know that the primary goal of buying a term insurance plan is to financially support your family in your absence, have you ever considered the many other ways it can benefit you? Term insurance provides a high sum assured as a death benefit, which can be used to cover various expenses, including outstanding home loan dues. In fact, many lenders recommend purchasing insurance when you apply for a home loan.
Let's explore the important role term insurance plays in protecting your home loan.
Term insurance ensures that your loved ones have sufficient funds to repay your home loan in case of an unfortunate event. Legally, the responsibility to clear a loan falls on your next of kin if something happens to you. This means that if your home loan is still unpaid, your spouse, parents or children would be left to settle the debt. With the loss of your income, this could put significant financial strain on them. It can also potentially force them to sell the house or other assets to repay the loan.
However, if you have a term insurance plan with a sum assured that covers the home loan in addition to your family’s future financial requirements, your loved ones can use the insurance payout to settle the debt. This way, they can keep the house and continue paying the instalments without making painful financial sacrifices.
Considering that a home loan tenure can extend up to 30 years, anything can happen during this period. That is why it is essential to be prepared for all possibilities, and term insurance helps you do just that.
Term insurance plans offer long policy tenures that can range up to 30-40 years. These plans can be aligned with the entire duration of your home loan. So, if anything happens during the loan term, the term insurance payout will protect your loved ones by providing the necessary funds to cover their needs and repay the loan.
Term insurance plans are not impacted by your home loan. Borrowers often switch from one lender to another to secure more affordable interest rates or better loan terms. You can do this without affecting your term insurance coverage. These plans are flexible and remain in place regardless of any changes to your home loan provider.
Home loans come with high interest rates. Moreover, since the value of real estate is high, the monthly instalments are also relatively high. This might make buying insurance seem like an added financial strain. However, term insurance is one of the most affordable financial products on the market. The premiums are relatively low and even lower if you are young. So, they rarely feel like a burden and can be easily incorporated into your budget.
No matter what happens, as long as you pay the premiums on time, your term insurance plan guarantees a payout in case of an unfortunate event during the policy term. This benefit is assured and will be provided to your beneficiaries to ensure they are not left unprotected during a difficult time in their lives.
A term insurance plan allows you to benefit from tax advantages under Section 80C of The Income Tax Act, 1961. You can claim tax deductions on the term insurance premiums paid up to Rs 1.5 lakh per year. These savings can help you cover your home loan instalments.
In case of an unfortunate event to the policyholder, the death benefit received by the nominee is also completely tax-free subject to conditions under Section 10(10D) of the Income Tax Act, 1961.
If you have a home loan, the sum assured for your term insurance policy should be at least ten times your annual income plus the outstanding balance of your home loan to ensure adequate coverage for your family’s financial needs. So, if your home loan is for Rs 50 lakh and your annual income is Rs 10 lakh, your term insurance coverage should be at least:
Plus
This brings the total to Rs 1.5 crore. So, you must buy a term insurance coverage for at least Rs 1.5 crore or more. You can also opt for a higher cover, depending on your family’s other financial goals and needs. You can use a home loan insurance calculator to determine the ideal life cover and premium tailored to your family’s financial needs.
Among all the benefits of term insurance, coverage for a home loan truly stands out. Given the high values of home loans, it is crucial to consider every possible scenario and ensure your loved ones are financially protected in your absence. With affordable premiums, term insurance plans offer a practical way to secure your family's future and safeguard them from unwanted financial stress.
