Home Loan Protection Plan

Housing loan protection is an insurance plan provided by banks. In the event of the borrower's death or incapacity resulting in loss of income, the insurance company pays the loan rather than the dependants. Some banks require a loan protection plan to be in place before the loan may be granted.

Let’s look at it in detail. 

What is a Home Loan Protection Plan?

Home loan insurance, often known as a home loan protection plan, is a type of insurance meant to provide financial protection in the case of unforeseen circumstances that limit your ability to repay your home loan. It serves as a safety net, guaranteeing that your loved ones are not burdened with repaying the outstanding loan in the event of your unexpected death or incapacitation. 

Aside from covering the outstanding loan balance in the event of the borrower's death, home loan insurance provides a great sense of security and peace of mind. 

What are the Advantages of a Home Loan Protection Plan?

A home loan protection plan comes with the following benefits. 

Tax Benefit

Purchasing a home loan protection plan is a great way to get tax savings. Section 80C permits you to deduct insurance premiums. 

Affordable 

Property insurance for home loan policies requires a one-time premium payment.
If a person's family cannot afford it, the premium can be added to the loan balance and deducted via EMI. This lowers the cost of paying the premium. 

Protection

Repaying a loan on behalf of someone else might be challenging. The collateral used to secure the loan could be taken if you are unable to repay it. 

Home loan insurance will prevent this from happening. It ensures that a borrower's family does not have to go through a difficult time following the death of the principal loan payer. 

How Many Types of Home Loan Insurance are There?

Home loan insurance comes in three types:

• Level Cover Plan: In this, the insured's coverage remains constant throughout the duration of the home loan.

• Hybrid Cover Plan: The coverage remains constant for a set amount of time. However, it begins to reduce when the outstanding loan sum decreases over time.

• Reducing Cover plan: In this case, both coverage and the remaining loan decrease as tenure increases.

Is a Home Loan Protection Plan Mandatory?

When you apply for a house loan, the lender may also require you to obtain home loan insurance. Remember that even while it is expected of you to safeguard the lender's financial interests, you are not required to.

Currently in India, buying home loan insurance is not required to get approved for a home loan. A financial institution cannot compel you to invest in one. However, buying house loan insurance is a good option because it protects your funds and covers home loan amounts in the event of a calamity.

What is the Payment Structure of a Home Loan Protection Plan?

The payment structure for the home loan protection plan is as follows. 

• EMI

Equated monthly installments or EMI payments are made every month for the loan duration. For the Housing Loan Protection Plan, the insurance payment is added to the house loan's EMI and paid as one.

• Single Premium Payment

In this payment method, a single premium is paid when purchasing insurance. Housing finance providers sometimes combine premium payments with home loan amounts.

• Limited Pay

This is another option in which the insurance premium is only paid for a limited time throughout the home loan's tenure.

You may think that buying a home or housing loan protection plan will be an added expense to pay alongside borrowed money that must be repaid. However, if you intend to protect your house and your family from potential unforeseen events, you should go for a home loan protection plan.

Furthermore, the policyholder may be eligible for tax benefits under Sections 80C and 80D of the Income Tax Act, which adds to the financial benefits of home loan insurance.