Home loans are bulky. It takes up a significant portion of one’s monthly income. During this, if something is to happen to the breadwinner of the family, it becomes quite challenging for the family to pay off the loans and managing other day-to-day expenses.
With a life cover, even after your demise your family will not have to face the financial trouble and can easily pay off home loan outstanding amount. As per financial experts, you must have a life insurance cover to ensure financial backup for your family so they can easily meet their financial liabilities.
This type of insurance which is bought to cover the house in case of a death should be over and above the regular life insurance, as it has to cover your financial obligation and provide financial security to your family in your absence.
Term Insurance to Cover Home Loan
Usually, the loan providers insist on buying a term plan to secure its liability. In order to get the security against the loan amount, you should buy a term insurance plan to get the cover at low premiums. The basic idea is to choose the policy term that should be equal to the tenure of the home loan.
Single Premium Term Plans
These are specially designed to cater the needs for home loans. Here the amount of the premium is included in the home loan. This amount is recovered through the tenure of the home loan. It secures your family against the home loan liabilities, in your absence.
Annual Premium Term Plans
This type of policy provides you with an option of discontinuing the life insurance at any point of time. This is because usually the home loans are paid before the tenure because the home loan borrowers prefer being debt-free. In case you want to close your home loan before its stipulated time period, single-premium term plans don’t work well.
The idea of a financial backup for your home in case of the demise of the loan borrower is good. But one also needs to be fully aware of the pitfalls as well. There is no tax benefit available on the premium amount. If one chooses to opt the single premium policy along with your home loan, one cannot port the insurance plan if the lender is ever switched.
There are also some companies that offer life insurance plans with the reducing cover as per your outstanding home loan amount. This makes your insurance cheaper and fit to your needs.