How to Protect Home Loan With Term Insurance

We all grow up with big dreams and aspirations! Some dream of becoming actors, others want to become world-class chefs, and so on. But there’s one dream that many people share - buying a house, a place you can truly call home! But the cost of real estate keeps going up. So, you take a home loan to make this dream come true. As we all know, you must pay back the loan with an added rate of interest, which makes taking a home loan a big deal. It is a financial commitment that can last for many years, even decades.

And the harsh truth about life is that it does not come with any guarantees. In case something unfortunate were to happen to you before you finish paying off the loan, the bank or financial institute would demand the remaining settlement from your family. That’s where things can get a bit difficult for them, as they will have to shoulder the burden of repaying the loan.

Enter term insurance! It is a safety net that provides financial security to your family if something were to happen to you. It will ensure that your loved ones won’t have to bear the debt burden in the event of your untimely demise. When you take a home loan from a bank, they usually require you to have term insurance. They may even offer you one themselves. But, you should evaluate other options too to find the best policy that suits your family’s needs.

In this article, we will explore how term insurance safeguards your home loan and ensures a secure future for your family.

What Exactly Is Term Insurance?

Term insurance is a simple and effective solution to safeguard your family's financial future. By investing in it, you provide an ally for your loved ones that ensures they are financially protected if something happens to you during the policy period.

In the event of your passing away during the policy period, the insurance company will provide your family with a sum of money, known as the 'sum assured'. This amount will replace your income and help your family maintain their financial stability without having to compromise on their dreams and lifestyle. They receive this amount based on the claim payout option you select while purchasing the policy.

Term insurance is a pure risk cover. If you survive until the end of the policy term, you will not be entitled to receive any benefits.

How Does A Term Plan Protect Home Loan?

A term insurance plan protects your home loan in the following ways -

Ensures Financial Security

Imagine this scenario: God forbid something happens unexpectedly, and you're no longer there. Without term insurance, your family would not only inherit your home but also the weight of your remaining mortgage payments. However, with term insurance, the death benefit can cover the entire loan balance. In plain terms, they will no longer have to make those payments. During such a painful moment, that is a huge relief for them, so they really can deal with grieving and healing without added tension caused by uncertainty about their financial future.

Offers Peace Of Mind For You And Your Family

Having that assurance that your family will be okay financially, especially with the mortgage covered, is such a weight off your shoulders. You can focus on planning for their future and ensuring they have everything they need without the fear of leaving them in a tough spot.

Provides Flexibility

Term plans really give you the flexibility to match your coverage term with how long you're paying off your home loan. It's like tailoring the insurance to fit your specific financial responsibilities. So, whether your mortgage is for 15 years or 30 years, you can pick a policy term that aligns perfectly.

Reasons To Protect Home Loan

Here are some compelling reasons why you need to protect your home loan -

Life Is Uncertain

Life is full of surprises, right? It's all about the unexpected happening at all the uneventful times. That's exactly where term life insurance steps in to make sure your family stays financially safe and secure from any shock that life throws out.

Affordable Premiums

Term life insurance is a really practical choice for safeguarding your home loan. It offers substantial coverage at much lower premiums than other types of insurance. This means you can protect your mortgage without stretching your budget too thin.

Flexible

With term insurance, you can enjoy the freedom to pick a duration that just perfectly matches your home loan repayment period. This ensures that your coverage remains intact throughout the entire duration of your loan. How convenient, right?

Customisable

Have you heard about the decreasing cover option? It is one of the coolest features that allows you to adjust the cover amount according to your reducing home loan balance as you pay it off. So you wouldn't be paying for the coverage that isn't required at any point of time. Isn't this a smart way of keeping your premiums in check?

Secures Your Family

The term life insurance steps in to take care of your family's financial future in the event of your demise. That way, they won't have to undergo the agony of losing their family home because of an outstanding loan.

Safeguards Your Legacy

Your home is more than just a place; it is, most likely, the greatest asset that you own. Term life insurance can help protect it as part of the legacy of your family - making sure it gets passed without the weight of debt down the generations. It's all about preserving what you worked so hard for!

Important Point To Note

When you are securing term insurance for a home loan, you should assign the policy to the lender for the outstanding cover. So, in case you pass away during the policy term, the claim amount equivalent to the outstanding cover will be first paid to the lender. Any remaining sum will then be paid back to your family, freeing them from the debt burden. This creates an efficient way of paying back your loan and providing your family with a sense of financial relief, allowing them to focus on other important matters.

5 Things To Do When Purchasing A Term Plan For Home Loan

Here’s a list of the things you should do if you are buying a term insurance for mortgage loan -

1 Calculate The Right Cover Amount Before purchasing a term insurance plan, it is essential to calculate the cover amount accurately. This amount should adequately meet your family's financial needs, ensuring their comfort and well-being in your absence.

2 Choose The Lump-Sum Payout Option

Most term insurance policies offer customisable claim payout options. Generally, you will find three choices available: monthly income, lump sum, or a combination of both.

If your primary objective for purchasing a term plan is to repay your home loan, the lump-sum claim payout option is the best choice. Under this option, the claim amount is paid in a single go as a lump sum. A portion of this sum is allocated to settle the outstanding loan with the bank. The remaining amount, if any, is disbursed to your family, providing them with essential financial support.

However, if you have a home loan to cover and also want to address other financial needs, opting for a combination of a lump sum and monthly income option would be the most suitable choice. The lump sum will help your family repay the loan while the regular monthly income will help cover their everyday expenses such as EMIs, utility bills, etc.

3 Choose A Policy Duration To Match The Duration Of The Loan Repayment The policy term or duration refers to the time period during which your term insurance policy remains in effect, given that you fulfil all premium payments in a timely manner. When selecting a term insurance plan just to cover your home loan, it is essential to ensure that the policy duration is, at minimum, equal to the repayment period of your loan. This will ensure that either you or your term plan can successfully clear the outstanding loan amount, thereby eliminating the burden of repayment on your family under any circumstances.

4 Take Your Family Through The Policy Details You may not always be present to support your family. Therefore, it is essential to engage in open and transparent communication when purchasing a term insurance plan. Take the time to sit down with your family, particularly the nominee, and explain the policy you have chosen, walking them through all the details. By doing so, you provide them with a clear understanding of the claim settlement amount and the process involved. It will empower them to make informed decisions and be well-equipped ahead of time.

5 Keep All The Documents In One Place

It is vital to maintain all your policy documents and other essential paperwork in a single, secure location. By doing so, you can ensure easy access to these documents whenever necessary, eliminating any potential complications during the claim settlement process.

Term Insurance vs Home Loan Insurance

Home loan insurance is usually provided by banks and other financial institutions that offer home loans. The plan is generally bundled with your loan and provides coverage till the loan is repaid and the cover amount keeps on decreasing over time. If you pass away during the policy period, the cover amount will be used to close the loan.

Term insurance varies from home loan insurance in the aspect that the cover amount can be used for both paying off any loans and financial responsibilities beyond that like monthly bills, education fees, etc. if any. The plan helps your family live a financially stable life even in your absence. Also, compared to a home loan insurance plan, a term insurance plan is cheaper.

Best Term Insurance For Home Loan

If you’re looking for a term insurance plan that will protect your loved ones from shouldering the burden of a home loan, here are two pretty great options -

1. ABSLI DigiShield Plan [UIN: 109N108V11] An online term insurance plan that gives your loved ones financial support in your absence. It’s a good option for any life stage - whether you are single, married, have a loan, etc. You can choose how the claim amount will be paid out and add riders to your base plan. It comes with features like life stage protection, sum assured reduction, etc.

2. ABSLI Anmol Suraksha Kawach [UIN: 109N139V01] A term insurance plan with a short policy period. It covers you for a duration ranging from 2 to 5 years, based on your preference. It gives you a life cover along with other benefits to keep your family financially secure from any short-term obligations like home loans in your absence.

Conclusion

While it is difficult to imagine a world without your presence, securing your family's financial well-being is highly important, especially when you have a substantial liability - a home loan. A term insurance plan can help you do that. All you need to do is choose the right plan and cover amount to ensure that your loved ones don’t have to bear the burden of loan repayment. It is a simple step towards ensuring their financial stability when you won’t be around them.