5 Points To Consider Before Buying A Home Loan Protection Plan
Your home loan provider has already explained the several benefits that you will be able to enjoy if you bought an insurance cover for your home loan. In these uncertain times, it makes perfect sense to do so, you think, and rightly so. However, before you make a decision on this, PropGuide lists certain points for your to consider:
- Do not confuse property insurance with home loan insurance. While the former provides your property protection against damages, the latter covers your outstanding loan liability in case of death during the loan repayment tenure. You must also keep in mind the fact that your home loan protection plan does not provide cover in case of natural death and suicide. In case you want to cover losses caused by loss of job, critical illness or disability, you will have to pay an extra premium.
- Home loan protection plans are one-time-payment premium and you do not necessarily have to buy it. Do not buy a home loan cover unless you are absolutely sure that you need it. Even if your bank harps on the various benefits of the cover, it should be your taking the call. Be mindful of the fact that home loan protection plans are generally a third-party product and financial institutions earn a profit on selling them.
- You can avail of tax deductions under Section 80C of the Income Tax Act if you are paying a premium for a home loan cover. This, however, does not hold if you have borrowed money from your bank to do so and the amount is included in your monthly loan re-payment outgo.
- In case you pre-pay, restructure or transfer your loan, the benefits provided under the home loan protection plan cease to exist. The one-time premium has already been paid and any changes in loan repayment process would not matter. This also means that if you transfer your loan to another bank, the present cover will no longer be applicable. Same is true in case you extend your loan re-payment tenure; your policy might not be able to provide you protection for the whole term.
- Your cover under a home loan protection plan is linked with the re-payment and reduces when you repay. Suppose a borrower took a loan of Rs 30 lakh and bought a home loan protection plan along. In case he dies at a time when Rs 25 lakh have been repaid, the home loan cover provider would settle with the bank the remaining amount of Rs 5 lakh only. This is not true in case of a term insurance plan, which provides you with a full cover. In a similar situation, a term insurance will provide the family of the borrower Rs 30 lakh.