Don't Forget to Insure Your Home Loan

It’s undeniable that individuals across income brackets, including the middle and high-income groups, often leverage the convenience of home loans to purchase their dream properties in the real estate sector. Over the past two decades, home loans have not only become available at lower interest rates but also on more lenient terms. Banks, along with non-banking financial institutions and private financial companies, facilitate this service.

Whether it’s a bank or a non-banking institution, whenever someone takes out a home loan or a loan against property, they are often advised to insure the loan. Essentially, loan insurance comes in two forms: insuring the individual taking the loan and insuring the property itself. Should individuals opt for insurance when taking out a loan against property? Is it beneficial, or would it mean paying unnecessary insurance premiums? Let’s delve into these questions.

Why Insurance is Essential

It’s indisputable that we’re all familiar with unforeseen events that may occur in the future. The comfortable situation we’re in today may not necessarily persist in the future. Consider a scenario where the primary breadwinner of a family, who took out a loan to purchase property, suddenly passes away due to illness or accident. In such a situation, who will be responsible for repaying the loan? Insurance serves to mitigate such fluctuations and risks in life. By insuring your home loan or loan against property, the insurance company, after conducting essential checks, typically takes over the loan in case of the borrower’s demise, ensuring the remaining loan amount is settled with the lending bank or institution.

Property Insurance

Before discussing this aspect, imagine a situation where your property, whether purchased or self-constructed, incurs damage due to an earthquake, tsunami, or any other natural disaster. What would you do? Property insurance serves as a safeguard in such scenarios. With a nominal premium, you can insure your property to avoid bearing the brunt of such unforeseen circumstances.

Necessity in Long-term Loans

Whether it’s a home loan or a loan against property, both typically have long tenures. Suppose you take a loan of twenty lakhs at an interest rate of 9 to 11 percent from a bank or institution, which you’re required to repay over fifteen years. The combined principal and interest would result in monthly installments averaging between twenty to twenty-four thousand rupees. While focusing on monthly installments is crucial, it’s equally important to consider insurance for the entire loan tenure, given the uncertainties and potential risks over a 15 to 20-year period.

Considerations

Financial institutions typically provide information about insurance when offering loans. Some deduct the insurance premium from the loan amount and then disburse the remaining balance to the borrower, while others leave the decision to the customer. Therefore, understanding the importance of insurance and carefully examining its terms is imperative. Consider factors such as the premium cost, whether the property remains insured until the loan is fully repaid, and what benefits the insurance company provides in case of physical incapacity during the loan tenure.

In conclusion, the decision to invest in home loan insurance is personal and depends on factors such as one’s financial situation, the nature of the loan, and the family’s needs. However, considering the demands of the present and uncertainties of the future, it’s advisable to avail of this facility for the security of oneself and one’s family.

The author is founder, Homents Pvt Ltd. Views are personal.