A home loan is a long commitment, often up to 30 years. But what if something unexpected happens and you’re unable to pay? That’s where a Home Loan Protection Plan (HLPP) comes in.
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 dependents.
It ensures your family does not bear the repayment burden in case of your untimely death, disability, or certain critical illnesses. Some banks require a loan protection plan to be in place before the loan may be granted.
Let’s look at it in detail.
Home loan insurance, often known as a home loan protection plan (HLPP), is an insurance policy linked to your housing loan.
It 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. If the borrower passes away or becomes permanently disabled, the insurance company repays the outstanding loan amount directly to the bank.
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. This way, your family can keep the house without worrying about EMIs or losing the property to loan recovery.
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.
So, in short, HLPP = Insurance Cover + Loan Security + Peace of Mind.
No, a home loan protection plan is not mandatory in India. Neither the Reserve Bank of India nor the Insurance Regulatory and Development Authority (IRDAI) requires you to purchase one to get a home loan.
However, many banks bundle HLPP with home loans and may “strongly recommend” it. You can legally refuse and choose another insurance product, such as a term plan.
A home loan protection plan comes with the following benefits -
Purchasing a home loan protection plan is a great way to get tax savings. Section 80C permits you to deduct insurance premiums.
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.
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. Some plans cover terminal illness, accidental death, or job loss for 3–6 months.
There are three types of home loan protection plans -
The insurance cover remains the same throughout the loan tenure.
The cover stays constant for a fixed period, then starts reducing as loan balance falls.
Both the cover and the loan balance reduce together over the loan period. This is the most common option.
While an HLPP is useful, it’s not perfect. Here are some limitations -
The coverage is limited to just the loan and doesn’t provide extra money for family expenses.
The premium cost can be high, and that adds to the cost of the loan.
Death by suicide (within 1 year), pre-existing illnesses, or certain critical diseases may not be covered.
If you refinance or transfer your home loan, the policy may not move with it.
If you prepay your home loan early, the insurance premium is usually non-refundable.
Let’s say you take a home loan of ₹50 Lakh for 20 years. After 10 years, you pass away with an outstanding balance of ₹30 Lakh.
If you have an HLPP, the insurer will pay ₹30 Lakh directly to the bank. Your family keeps the house and has no loan burden.
Without HLPP, your family would have to arrange money to pay the balance or risk losing the property.
There are three payment structures for HLPP. You can choose the one that suits your needs -
For the Housing Loan Protection Plan, the insurance payment is added to the house loan's EMI and paid as one.
In this payment method, a single premium is paid when purchasing insurance. Housing finance providers sometimes combine premium payments with home loan amounts.
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 a 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.
However, before buying, compare HLPP with term insurance and check exclusions carefully. The right choice will depend on your financial situation, family needs, and existing cover.
The following three factors determine the premium for home loan insurance -
The borrower's age
Loan term or loan amount
Borrower’s medical history
Besides death, home loan insurance sometimes covers -
Terminal illness
Accidental death
Unemployment for three to six months, affecting EMI payments
Disability
Most financial institutions offer home loan insurance in addition to the loan itself. While home loan insurance is not required, it is advised.
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Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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