Buying a new home is a lifetime dream for many of us. It is a goal that most middle-class people work towards all their life. However, when you buy a house, many other decisions are to be made, many other things to be thought of. One thought that may often come to your mind, especially if you are the primary earner in the family, is that if something happens to you, how would your family deal with the financial loss.
When you take a loan to finance the home of your dreams, it becomes a long and continued commitment. Most home loans quickly go up to 25 to 40 years. With the unpredictable nature of life, we can never be sure of what life throws at us. If something happens to you, do you think your family would be able to pay the instalments towards the loan for many years after you have gone? If you pass away untimely, how would the home loan or the mortgage be paid off? Would your family be able to give such a big instalment month after month? Would your family be forced to sell the house to pay the debt? What would happen to them if such a disaster strikes? If the loan defaults, will the bank take away the home, and the family will be homeless? Would your home loan company seize the collateral or the house?
If these worries have been hovering over your mind, maybe before locking yourself into a dream home, followed by a huge loan, you need to find out the options that can help you avert such a financial crisis for your family. You need to be proactive to secure your family's financial future. Thankfully, there is a simple solution to this problem, Mortgage Insurance!
The different aspects and how imperative it is to Mortgage Life Insurance are discussed in this article.
What Does Mortgage Life Insurance mean?
When you procure a home loan, you have the option of availing of a Mortgage Life Insurance Plan. Mortgage Life Insurance also called Home Loan Protection Plan, HLPP, or Mortgage Title Insurance, is an insurance cover that offers coverage to you, the borrower, against non-payment of the home loan instalment/EMI. It is a pure protection Term Insurance Plan for your home loan so that if you happen to die before repaying the same, the burden of the loan doesn’t fall on your family. It could also work like a decreasing cover term insurance plan such that the outstanding coverage decreases with a fall in the principal outstanding.
As per financial experts having Mortgage Life Insurance is highly crucial; some home loans sell home loan insurance as a part of the home loan; however, there cannot be the compulsion to purchase Mortgage insurance from home loan companies. When applying for a loan, you should ensure that you pick the right one.
How Does Mortgage Life Insurance Work?
Mortgage Life Insurance works in a very similar way as a term insurance plan. The policyholder is protected with this cover till the loan tenure. Once you pay the entire loan amount, your insurance plan would also expire. However, if the policyholder, the person paying the loan amount, happens to die before the loan term is over, the loan amount would be paid by the Mortgage Life Insurance Company. With this kind of insurance, you can ensure that your bank does not seize the house or the collateral from your family.
Mortgage Life Insurance allows flexible premium payment options. You can pay a one-time premium or pay the premium in instalments, or you can also club the Mortgage Insurance premium along with the loan premium and pay them together. Let us see this with an example. Suppose you have a home loan of Rs 50 lakhs, and the premium is Rs 2 lakhs; you have the option of taking a loan of Rs 52 lakhs. The outstanding loan amount and the premium can be clubbed.
Why Should I Invest in Mortgage Life Insurance?
Most insurance companies offer Mortgage Life Insurance without any medical screening. The purchase process is quite simple, and the benefits are tremendous.
- Financial Security: Once you have invested in Mortgage Life Insurance, you and your family do not have to worry about what will happen to the family home if the policyholder becomes unwell or cannot work or passes away. Even in such a situation, you all can rest assured that the insurance company would manage the outstanding loan amount.
- Covers your Liabilities: Many traditional life insurance plans may not cover Mortgage Insurance. Some work only under death, while some work only under disability.
- Tax Benefits: The premiums you pay towards the Mortgage Insurance are eligible for tax exemption under section 80C of the Income Tax Act, 1961.
- Covers Joint Borrowers: Mortgage Insurance is not limited to individuals only. In case the loan is taken jointly, all co-applicants are also covered under the insurance policy.
- Add-Ons and Riders: Depending on the policy you are opting for, you can enhance your cover and opt for riders.
- Peace Of Mind: The fear of your family being without a roof can be addressed permanently. This assurance gives you so much strength and confidence to live life freely and spontaneously.
Conclusion:
As discussed earlier, having Mortgage Life Insurance is not mandatory, but at the same time, it is a significant investment that you can make to secure the future comfort of your loved ones. God forbid if some unfortunate incident takes place, they would not be pushed into a debt ditch. It is also crucial that you research and buy an insurance plan that suits your needs the most. Out of all the available options, select the one that offers maximum benefits at the lowest premium.
Also, keep in mind that it is not compulsory to purchase Mortgage Life Insurance while applying for a home loan. You have the option of buying Mortgage Life Insurance at a later stage through any other bank or financial institution. Your Private Mortgage Insurance can assure you that your family would not have to suffer even under unforeseen incidents.
FAQ:
1. Are Home Insurance and Mortgage Insurance the same?
No, they are not. Home insurance offers you coverage against damages caused to your house due to floods, earthquakes, fire, theft etc. on the other hand Home Loan Insurance or Mortgage Life Insurance is used when the policyholder can no longer pay the home loan instalments.
Home insurance can be purchased anytime one wishes to, whereas, in Mortgage Insurance, it can be purchased only when you have a continuing home loan or are applying for one.
2. What are the Different Types of Mortgage Life Insurance Policies Available?
Mortgage Insurance can be divided into two broad categories:
- Decreasing Term Insurance: In such a plan option, the sum assured is decreased along with the outstanding balance of the loan till both turn nil.
- Level Term Insurance: In case the mortgage is interest-only, the sum assured does not decrease. It remains constant throughout the tenure of the loan.
3. What riders can be opted for under Mortgage Insurance?
The following riders can be opted for:
Accidental Death
Accidental Disability
Critical Illness
Loss of Job (Up to a specified period)
4. Can I avail any tax benefits under Mortgage Insurance?
Yes, you can. The premiums you pay can be availed for tax exemption under section 80C of the Income Tax Act, 1961.
5. What is the need for mortgage insurance?
All prospective homebuyers should prioritise safety when deciding whether to purchase mortgage insurance.
6. List of companies which provide mortgage insurance
Many companies offer mortgage insurance in India. Some are LIC Housing Finance,, ICICI Home Finance, UCO Bank, United Bank of India, Citi Bank, and Standard Bank.
7. What is the difference between HLPP and Pure Term Plan?
Lenders favour HLPP because it keeps the amount they disburse secured. For this reason, even though HLPP is not required, most lenders promote it to their clients. However, The best term plan is more appropriate because it keeps all of their liabilities and family needs to be covered.
Disclaimer: The information published in this article is for reader′s reference only. Content of this information is to provide an overview of your life insurance needs and should not be relied upon for personal, medical, legal or financial decisions and you should consult an appropriate professional for specific advice The makes no representations about the suitability, reliability, timeliness, and accuracy of the information, services, or any other items mentioned on this subject for any purpose whatsoever.