The fine print: Want coverage for your home loan EMIs?
A house is your social and financial security. If a mortgage financed the purchase and the main borrower dies, the whole family suffers and may even have to abandon the house if the surviving members cannot repay the loan. When taking out a mortgage loan insurance contract, you must carefully read the terms and conditions of the contract in order to avoid any dispute. A home loan insurance contract is a legal document; therefore, you cannot afford to sign it without reading the terms and conditions. Here’s what you should pay attention to.
How home loan insurance works
Home loan insurance is a risk mitigation tool. He ensures that the borrower’s heirs are not encumbered by loan IMEs in his absence. In the event of premature death or terminal illness of the borrower, the insurance company reimburses the outstanding loan amount on behalf of the borrower. In addition to covering the financial risk related to the death/disability of the borrower, home loan insurance can also cover emergencies such as losses due to burglary and fire, subject to a maximum ceiling of the sum insured. .
Also read that SBI home loan EMIs will rise as the lending rate rises again
Home loan insurance allows the borrower to pay the premium all at once or in regular installments. Premiums paid on mortgage loan insurance are eligible for deduction under Section 80C, and the death benefit is exempt from tax under Section 10(10D). Read the fine print carefully. Although the basic feature of home loan insurance products is similar across all companies, they may vary in terms of additional features offered at the same time. The coverage of the outstanding amount of the mortgage on the death of the borrower is common to all insurance companies. However, depending on the product, the insurer may offer benefits such as separate coverage to cover the cost of critical illness, accidental death benefit, etc.
Soumee Bhatt, General Counsel, BankBazaar.com, explains: “When buying a mortgage loan insurance policy, check the different risks covered by the policy apart from death and total disability. One thing you can check is the cash value. For example, when the loan is transferred to another lender, coverage may cease. You may be able to get cash value from a fully paid-up policy and buy another policy to cover your new loan.
Another important point that you need to check is the coverage in case of a change in the repayment obligation due to a change in the variable interest rate. Currently, the interest rate is increasing, which means your total repayment obligation will also increase. Thus, mortgage loan insurance should also automatically increase its coverage with a change in the interest rate. Check inclusions and exclusions.
Also read How to finish your 20-year home loan in 10 years: Managing your money
The list of exclusions may vary from company to company and depends on the features of the insurance policy. Some common exclusions may include pre-existing disability and injury, intentional self-harm, suicide, damage due to acts of enemy and war, etc. Avoid the insurance product with a long list of exclusions, while prefer the insurance product giving you broader coverage. and have a long list of inclusions.
Things to keep in mind
Remember that home loan insurance is not the same as home insurance. However, home loan insurance can also provide you with coverage on your home’s structure and assets up to the amount of your home loan outstanding. You can also check add-ons such as critical illness, partial disability, and income protection due to job loss for an enhanced benefit when purchasing home loan insurance coverage.