Home Loan Insurance or Term Insurance: Which is Better to Protect your Home Loan?

Home Loan Insurance

During the final stage of getting a home loan, lending institutions will suggest you buy a home loan insurance plan. This is an insurance product that is meant to provide your family with financial support to repay the loan in case of unfortunate events. Therefore, in case of your untimely demise, disability or temporary job loss, the insure repays the outstanding home loan amount to your lender and keep your family safe from financial turbulence. Generally, banks offer two types of protection plans, namely Home Loan Protection Plan and Term Plan.

Home Loan Protection Plan (HLPP): Here, the insurer covers the outstanding amount to be paid in case of the untimely demise of the insured.

Term Insurance plan: Here, the insurer pays a lump sum amount to the beneficiaries as a death benefit, which they can use to repay the outstanding loan amount.

Many experts promote home loan insurance due to the benefits it offers to the borrowers and confidence of the loan repayment after any eventuality. However, comparing them before making a purchase is a sign of smart borrower. Here is the comparison between home loan insurance and term insurance.

Home Loan Insurance

Term Plan

Premium

Though the premium of home loan insurance is higher than term plans, it is a one-time thing. The premium for term insurance is split into several instalments that borrowers need to pay periodically.
You have to pay higher EMIs as the single premium amount is added to your home loan. E.g., the premium for a term plan of Rs. 50 lakh would be around Rs. 4,000 to Rs. 8,000.
E.g., the premium for home insurance of Rs. 50 lakhs will be around Rs. 25,000.

Life Cover

Home insurance covers the sanctioned home loan amount. Thus, the cover decreases with every EMI payment and eventually reduces to zero at the end of tenure. A term plan offers a specified protection cover in case of the untimely demise of the insured.
It helps to repay the outstanding loan amount and thus, acts as financial help to the family.
Special term plans offer maturity benefits when the insured outlives the policy.

Modification in the Cover

As the insured pay the entire premium while buying HLPP, it cannot be modified. A term plan is like an umbrella that covers all the needs of the family.
The span of HLPP remains constant despite the insured extending the tenure. A term plan can be modified based on financial responsibilities.
E.g. if an insured increases the tenure from 10 years to 15 years, the HLPP provided cover for the first 10 years.
Similarly, the insured does not get the remaining premium when he/she forecloses the loan.

Tax Benefits

As the premium paid for HLPP is included in the home loan amount, it offers a tax deduction. As the premium paid for the term plan is included in the home loan amount, it offers the tax deduction.

Add-ons

Home borrowers can buy various raiders providing cover to disabilities, joblessness, etc. along with HLPP plans. Term plans also offer similar add-ons for cancer, heart diseases, etc.
Moreover, HLPP add-ons cover the EMI repayment up to three to six months if the insured has received the pink slip. The premium for add-on on the terminal plan is lower than HLPP.
The premium for the add-on is comparatively higher than the same for term plans.

Human life has become extremely uncertain nowadays. Therefore having insurance for your home loan is critical to protect your loved ones from financial burden. The above two options are the best way to secure your family’s future, however, to make the right choice depends on your financial condition.

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