The key distinction is that home loan insurance protects property, while term insurance protects a person’s life.
So, your house loan has finally been released, and you can finally call yourself a homeowner. This is, without a doubt, one of the most treasured and costly expenditures you will make in your life.
But have you ever considered the probability of anything occurring to you before you pay off your whole mortgage? Your responsibilities will be transferred to your family members, putting them in financial jeopardy.
While there are several factors to consider when purchasing a property, we often overlook critical add-ons such as home loan insurance coverage. There are two options for protecting your family from such liabilities: home loan insurance or a term insurance policy.
Both plans provide protection against financial hardship. The primary distinction is that a home loan protects the property, while term insurance covers a person’s life. Let’s go further to discover the distinctions.
What is Home Loan Insurance?
Also known as “Mortgage Loan Insurance” or “Home Loan Protection Plan”, a home loan insurance policy takes care of your home loan debt in case of eventualities like death, critical illness, or permanent disability.
Fees for premium services
Depending on one’s requirements and current financial situation, one may choose either sort of insurance. Term insurance is less costly since the policyholder may pay a monthly or yearly payment. A prolonged period of inflation, on the other hand, might severely erode its worth.
In comparison, home loan insurance is added to the loan, making it more costly. At the same time, it protects homeowners throughout the loan term, allowing them to purchase property at a lesser cost.
Coverage under the policy
Term insurance is a sort of insurance that covers a person’s life for a certain length of time, ranging from one month to 30 years. However, it should be noted that it only covers the risk of mortality during the term time.
Home loan insurance protects the lender in the event of a borrower default due to unemployment, disability, or death. The coverage terminates when the outstanding house loan is repaid. If the borrower dies during the term, the insurance pays the outstanding house loan sum.
A person who takes out a house loan already saves money on taxes and is eligible for deductions under Section 80C of the Income Tax Act. Because home loan insurance is added to the loan, it provides the same advantages.
Term insurance policyholders are also eligible for Section 80C deductions. When comparing the two in terms of tax advantages, there isn’t much of a difference. However, the advantages may vary depending on the length of the loan.
One of the most significant advantages of house loan insurance is that it includes add-ons such as coverage for unemployment, disability, and chronic diseases.
Term plans, on the other hand, provide comparable coverage for a higher cost. However, since adding riders raises the cost, you should assess your alternatives and make a fair comparison based on your requirements.
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Which should you choose?
If you believe you will need the money from the life insurance policy, term coverage may be the best option. If it is more probable that your house may have to be sold in order to settle your debt, a home loan insurance plan may be more suitable.
A house loan insurance coverage covers a significant portion of one’s financial obligations. As a result, it is best suited for individuals who want to settle the sum in monthly installments. By choosing this product, one may also return an EMI with tax deductions since it has been certified by the income tax department as revenue expenditure.