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How Important is Home Loan Insurance

When you zeroed in on that dream house and decided to buy it, little did you know how much paperwork and additional costs would come into the picture. You probably thought that the price quoted by the seller was all that you needed in your account. And then you found out about stamp duty and registration charges and your budget went up by a few lakhs.

Now that you are on the verge of finalizing your home loan, your bank is asking you to add a home loan insurance to it. Another added expenditure! And youâre probably wondering, is it worth it? Well, the answer to that is both yes and no.

How does Home Loan Insurance work?

While the payment of stamp duty and registration is absolutely mandatory to prove your ownership of the property in a court of law, a home loan insurance is not an obligatory purchase. Most banks and lending institutions try to convince you otherwise, but the RBI has never mandated the insurance cover of a home loan. Then why should you think of buying it? A home loan insurance becomes important in the case of the borrowerâs sudden demise.

The responsibility of paying the loan EMI then falls on the family members. A home loan insurance will take care of this and help the family pay off the money or else the bank is likely to seize the property for non-repayment of dues. On the other hand, if your family has enough resources in hand and will be able to pay the loan amount in your absence, then a home loan insurance does not seem necessary.

In a nutshell, the home loan insurance is only a precautionary measure taken by homebuyers to help their families pay off loans in the unfortunate situation that they may not be able to pay the EMI. So, whether you will take a home loan insurance or not is pretty much your personal prerogative.

Some important aspects of Home Loan Insurance

The amount of the loan insurance can be added to your home loan. This means you wonât have to pay the entire insurance amount at the beginning, rather your EMI amount will go up. The option of a one-time payment is also available.

You are covered under this insurance till the period of your loan repayment. Once the outstanding loan amount has been paid, the insurance term expires. But in the case of the borrowerâs death before the expiry of the loan term, the family can claim the insurance to repay the remaining amount.

There is no tax benefit on the insurance premium amount

Sometimes, institutions try to pressurize buyers to take loan insurance and might not want to sanction the loan otherwise. In this case, ask for a written document stating that buying insurance is compulsory. This will deter them from pushing it forcibly to homebuyers. You may also complain to the higher officials of the bank/financial institution.

Remember, whether you should take a home loan insurance or not is entirely dependent on you and your familyâs financial status.
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Article Added on Friday, July 24, 2020
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