Owning a house is nothing less than a dream come true for all of us. Whether it is big or small, we all try to get a comfortable and secure house that we can call our home. However, with buying a home, comes the responsibility of paying off the home loan. Once you take a home loan, you have to pay a part of your salary as EMI every month, for years to the bank, until the loan is completely paid off.
So we can say, the responsibilities and financial pressure do not end with buying a house; it in fact starts with it. For example, you take a house loan of INR 40 lakh and the tenure is 20 years at a 9% rate of interest. You will easily have to pay around INR 36000 as EMI. If you want to reduce the EMI, you can increase the tenure by up to 30 years. As a result, every month you pay interest with the principal amount and end up paying way more than what you assumed, to the bank.
As you take a home loan, it comes with quite a high risk of default, mainly for reasons, such as
- Critical illness
- Permanent disability of the borrower
In such a situation, a term insurance policy can be of great help. If you choose a long-term insurance plan, the beneficiaries will get a large sum which they can use to pay off the loan. However, it happens in the event of the death of the insured.
How much Term Plan you should take if you have a Home Loan?
Taking care of the family against debt is one of the main objectives of a home loan-linked term plan. Although the majority of the home loan providers offer home loan protection plans that come with the home loan but purchasing a suitable amount of term insurance plan comes with several advantages as compared to a home loan protection policy.
The sum assured for your term insurance plan for a home loan must be equal to 10 times that of your annual income which should be added to the outstanding amount of the home loan. Taking for example; if your annual income is around 10 lakh, and the outstanding amount of home loan is INR 30 lakh, the term plan assured amount should be [10 lakh x 10 = 1 crore + 30 lakh = INR 1,30,00,000]. Therefore, when you are not around anymore, the home loan linked term plan with a sum assured of INR 1,30, 00,000 can be of help to your family.
Difference between Home Loan protection Plan and Home loan linked Term Plan
When you take a home loan, you can take a home loan protection plan. It is an option, and not mandatory. However, many people these days are opting for a home loan linked term plan. Let us see the difference between these two:
1. The premium that you have to pay for a home loan protection plan (HLPP) is higher as compared to a home loan linked term plan. HLLP is a one-time payment; while the home loan linked term plan premium has to be paid in installments, which can be monthly, quarterly, or annually.
2. The cover in an HLPP cannot be increased in case you increase the tenure of the home loan; however, it is nothing like that in a term plan.
3. The coverage in an HLPP lessens in direct proportion to the loan that is outstanding. Therefore, when the outstanding loan is paid off, it lessens till the time it becomes zero after the loan is completely paid off. However, when it is about a home loan term plan, the coverage remains the same throughout the tenure of the policy.
We hope that this information helps you in planning your term insurance in a way that leaves your family secure and with the benefit of having a roof over their heads, even if you are not there with them. As life is unpredictable and even those who are financially secure may face uncertainty when it comes to planning their future, it is important to plan for any eventuality. The IIFL Insurance website is a great place for you to know more about some of the best term plans and compare them to suit your needs. Choose the right term life insurance plan today and have a great future planned ahead for your family whether you are there to see it or not.