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A home loan makes buying your dream house a reality. But it does not come without a major implicit risk – that of inability to pay it back. This is where a term insurance plan can come as a savior. Read the blog to learn how.
Home loans have become the most convenient options of buying a house for anyone in India today. With easy EMIs and comfortable loan tenures, buying your own first home does not seem to be a distant dream anymore. However, as is the case with any type of loan, a home loan too comes with its own risks and obligations. In this case, the major risk involved is that of non-payment of the loan amount to the bank. Did you know that a term insurance plan can help save you from this risk to a large extent
To understand the connection between term life insurance and home loan risks, we would first need to understand why exactly there is a risk of non-payment involved in case of home loans.
A person choosing to take a home loan signs up an agreement with the concerned bank or financial institution about repaying the loan amount within a specified tenure. However, there emerges an unspoken, implicit risk in this agreement – whether the borrower would be able to pay the entire loan amount back to the lender within the specified duration?
Why does this risk emerge in the first place? There are primarily two reasons responsible for this:
In either of the two situations, the borrower may fail to repay the EMIs either on time or completely. In some cases, failure to repay the loan may also lead to the property being forfeited by the lender.
This risk looms over the borrower always and since it is entirely beyond the control of either of the two parties, it can sometimes make taking home loan a dreadful choice for the borrower.
However, the good news here is that term insurance cover safeguards the borrower against this risk, encouraging them to realize their dream sooner. Let’s see how.
We understood from above that there is an inevitable and unpreventable risk involved in the home loan process. But there is a way out to beat that risk and proceed with realizing your dream of buying your favorite property without a worry.
You can easily buy a term insurance policy to protect yourself against such unforeseeable risks in future. In case of an untimely and rather unfortunate demise of the borrower, their family (dependents) can still repay the loan using the coverage amount (sum assured) provided as part of the term insurance plan.
In order to avail this death benefit under a term insurance cover, the policyholder needs to pay a certain premium regularly to the insurance company. This premium payable is quite affordable and can be easily paid monthly, in 6 months, or annually, as per the convenience of the insured.
Let’s learn more about how you can use a term insurance policy to cover your home loan risks.
Here are different ways you can use term insurance for home loan to your advantage, ensuring that your loved ones never have to suffer in your absence with loan-repayment stress.
Now that we know that buying term insurance is only going to do you good if you have a home loan, the next question arises: how much term insurance cover should you opt for with a home loan?
Ideally, the rule to go by in this regard is that the coverage amount that you choose for your term insurance plan must be as much as 10 times your annual income earned. In addition, the home loan amount that needs to be paid back to the lender should also be taken into consideration along with this calculation.
To help you further, here’s a simple formula to calculate your term insurance plan cover if you’re already under a home debt.
Life cover for term insurance = 10X of your annual income + the loan amount remaining to be paid to the lender
A term insurance policy that satisfies the above criteria is considered ideal for purchase since it would sufficiently cover your family’s financial expenses in your absence + help repay the loan amount as well by your family members.
To make things even simpler for you, there are insurance premium calculators easily available online. They help determine the exact premium amount payable in order to receive the plan benefits in future.
You too can enter your financial requirements in a home loan scenario on a home loan term insurance premium calculator. This would give you a fair idea of the total amount of premium that you’d need to pay for your term insurance policy.
Availing a home loan facility is not uncommon anymore; however, it is equally important to opt for a term insurance plan cover as an add-on value benefit. In the case of any unforeseeable event in future, which may impact your loan-repayment ability, term insurance rider benefits can help to a large extent.
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