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How Term Life Insurance Covers Home Loan Risks?

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How Term Insurance Covers Home Loan Risks?
August 09, 2023

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For most of the people owning a home is a major life goal, which requires decades of savings and planning. However, thanks to the easy available and affordable home loans, this dream doesn’t have to be deferred for decades. While home loans have made moving into your dream home easy, they have a payment obligation that must be met to avoid losing the property.

If you are the sole breadwinner in the family and something untoward happens to you, your home loan EMI payments would be affected. Your untimely death or loss of income due to a critical illness or disability would push the home loan repayment burden on your family. This is why securing your home loan liabilities with a term plan is a must. While effectively hedging such risks, term plans also guarantee the financial stability of your loved ones.

How Can Term Plans Cover Home Loan Risks?

  • Cover your Home Loan Amount
    Ideally, your term insurance plan should be 10x your annual income. However, if you have an outstanding home loan, you must ensure that the sum assured adequately covers your loan amount. Rest assured, with the protection of the death benefit in place, your loved ones can comfortably settle the loan repayment without any financial burden, even if the unexpected happens.    
  • Protects Against Defaults
    Loss of employment due to a critical illness or permanent disability can come in the way of meeting EMI deadlines, resulting in a loan default. Term plans offer add-on riders1 at affordable rates to keep you covered in such situations. Opting for riders1 like a critical illness cover or a disability cover can help you hedge these repayment hurdles. So, even if you are diagnosed with a critical illness, you can take the lump-sum payout from the cover to meet your medical expenses and clear your home loan EMIs.
  • Secures Your Asset
    Defaulting on your home loan can ultimately lead to the repossession of the property. In other words, if you fail to meet your EMI payment obligations due to death or disability, you might lose your valued home. Alternatively, your dependents might be pushed to sell off other assets to make home loan payments or reach a settlement with the lender. Term plans help avoid both of these scenarios.

Ways of Securing Your Home Loan

To activate this protective shield over your home loan liabilities, you can opt for a term insurance plan or a home loan protection plan. Here’s a quick overview of both:

  • Home-Loan Linked Term Insurance –
    A term insurance plan brings you high coverage against affordable premiums. You can evaluate your financial liabilities to decide on a sum assured amount that remains constant throughout the plan. By opting for a cover that’s adequate for your family’s sustenance and home loan repayment, a term plan can effectively hedge all future risks.
  • Home Loan Protection Plan (HLPP) –
    An HLPP is designed solely to cover your home loan dues. Thus, the sum assured is equivalent to your home loan amount and the plan’s tenure is equal to your home loan tenure. Moreover, the plan’s coverage is contingent on your EMI payments. In other words, the sum assured under an HLPP decreases every year as your home loan liabilities keep reducing.

Conclusion

While home loans can help you fulfill the dream of owning a home, you cannot ignore the risks associated with outstanding debt liabilities. A term plan can protect you from future uncertainties by covering your home loan dues. Thus, opting for a term insurance plan can help you create a corpus for your family, protect your assets, and ensure easy home loan repayments.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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