A home loan is a financial offering that can be considered to be quite different from a term insurance plan, and for good reason. A home loan is a financial offering that turns into a liability but helps you build an asset in the form of real estate. On the other hand, a term life insurance plan is a measure of security you opt for to ensure your family does not have to suffer financially in the event of your passing.
So, how is getting a home loan with a term insurance plan alongside a sound idea?
With the right term insurance coverage, if you were to pass away while your home loan is still being repaid, your family can avoid the burden of this liability. An active term life insurance plan can provide adequate cover to deal with the loan repayment.
Thus, it is financial wisdom to opt for a home loan-linked term plan and ensure your liabilities do not become an unbearable burden in your absence. Let’s dive deeper into how a home loan with a term insurance plan can be the right decision for you.
Why Term Insurance for Home Loan?
A home loan-linked term plan ensures that, in case of the borrower's untimely death, the insurer pays a lump sum that can be used to clear outstanding EMIs. Without this protection, surviving family members may face the loss of their home due to unpaid loans. Unlike a home loan protector, which is generally limited to the loan repayment amount, term insurance offers comprehensive coverage, providing an extra cushion for future financial needs.
Here are some of the key advantages to consider.
- Peace of mind for the policyholder
- Tax exemptions to be earned on premiums as well as payouts**
- Flexible payout options
Home Loan Linked Term Plan vs Home Loan Protector
The choice between a home loan-linked term plan and a lender-provided home loan protector depends on the borrower's long-term goals and flexibility. Here’s a comparison of both options.
Aspect
| Home Loan Protector
| Home Loan-Linked Term Plan
|
Premiums
| Added to loan EMIs, no upfront cost
| Paid separately, often annually or monthly
|
Coverage
| Limited to loan repayment
| Coverage for loan and surplus for dependents
|
Flexibility
| Limited; tied to the loan
| Flexible; customizable with riders
|
Portability
| Difficult to transfer between lenders
| Can be retained independently of the loan
|
While a home loan protector directly pays off the EMIs, it lacks flexibility and additional coverage, limiting its utility in broader financial planning. On the other hand, a term life insurance plan ensures your family receives adequate funds, even after the home loan is settled.
How Term Insurance Safeguards Your Home Loan
Here are a few ways term insurance helps you cover your home loan liabilities, among other things.
Cost-effective Coverage
A term life insurance plan typically offers a substantial sum assured at relatively affordable premiums. For example, a non-smoker aged 30 might pay around ₹10,000-₹15,000 annually for a policy covering ₹1 crore—enough to manage both home loan repayment and future family needs.
Riders for Enhanced Protection
Term insurance plans allow you to add riders, such as critical illness rider, accidental death benefit, and waiver of premium. These features enhance the basic term insurance policy, turning it into a more versatile protection plan for both your home loan and other financial responsibilities.
Tax Benefits of Home Loan and Term Insurance**
Opting for term insurance tied to a home loan also brings tax advantages.
Section 80C: Deductions up to ₹1.5 lakh per year on term insurance premiums and principal repayment of the home loan.
Section 24(b): Deductions up to ₹2 lakh per year on the interest paid for a self-occupied home loan.
Section 80EEA: First-time homeowners can avail of an additional deduction of up to ₹1.5 lakh on interest, provided the property’s value is below ₹45 lakh.
These benefits not only provide financial relief but also make it easier to manage both home loan and insurance premiums. Exemptions are subject to prevalent tax laws and may be available to taxpayers under the old regime.
Steps to Secure Your Home Loan with Term Insurance
Here’s how you can go about getting the right term insurance plan to help with your home loan.
Step 1: Assess Your Financial Needs
Evaluate your existing financial commitments, including your home loan, monthly expenses, and long-term goals. This will help determine the sum assured you need in a term insurance plan.
Step 2: Calculate Adequate Coverage
Use online calculators, such as a term insurance calculator, or consult with an expert to ensure your home loan-linked term plan provides enough coverage for both the loan and your family’s future expenses.
Step 3: Choose Riders for Additional Protection
Add riders aligning with your financial objectives. For example, a critical illness rider can help cover treatment costs, while a waiver of premium ensures continued coverage even if you are unable to pay due to incapacitation.
Opting for a home loan with a term insurance plan is a crucial step in securing your family’s future. It not only covers the loan in the event of the borrower’s untimely death but also provides additional financial security. The right term plan offers flexibility, additional protection through riders, and tax benefits, making it an essential part of a comprehensive financial plan.
By ensuring your home loan is covered with the right life insurance, you can rest assured that your family will be protected from financial stress, even in your absence.
** Tax exemptions are as per applicable tax laws from time to time.
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