Is it Compulsory to take Insurance on a Home Loan?

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Is Home Loan Insurance Mandatory for a Home Loan?

4 mins read

Published: 3 July 2024

Updated: 9 July 2024

In a scenario where the world is working on insurance for everything, be it as small as your car key or as big as your life. Everything can be insured and save you from a financial burn in times of need. But we definitely never thought of having insurance over a Home loan. Did we? While not mandatory in India, Home loan Insurance policy can be lifesaving and provide a sharp insight to the lender about your financial behavior and responsibility towards the loan you are borrowing.

Owning a home is a major milestone in an individual’s life. It is not just a matter of pride and societal status symbol but also a very stable and strong financial investment. 

To realize this dream, many people plan on getting a Home loan to fund their construction/registration/miscellaneous expenses of the house. While an online home loan facilitates your purchase, it also adds a burden of repayment on the borrower, which can span over several decades. 

If everything goes well, there’s no problem. However, under unforeseen events, paying the EMI of the home loan can be a tense and heavy task for an individual.

In this article, let’s explore the benefits and advantages of having insurance on a home loan based on Financial Security, Peace of Mind, and Protection.

1. Financial Security for Borrowers:

One of the basic advantages of having home loan insurance is the financial security it provides to the borrowers. Unpredictable incidents keep happening in life such as the loss of a job, disability or even death might just severely affect the ability of the borrower to repay the loan. Home loan Insurance looks after you in such unfortunate situations, the remaining loan amount is covered which prevents the borrower’s family from being burdened by debt.

2. Peace of Mind:

Beyond financial security, having home loan insurance provides immense peace of mind to the borrower. Knowing that they have a safe bed to fall back on in case everything goes wrong, enabling the borrower to focus on other aspects and goals of life without worrying about their EMIs or Loan outstanding. 

3. Protection Against Market Volatility:

The real estate market can be volatile as property values fluctuate due to various geographical, geo-political, and economic factors. In case the property loses value, a home loan insurance can provide a much needed buffer.

Just in case the borrower decides to or is forced to sell his/her property due to difficult financial situations, a home loan insurance can cover the difference between the sale amount and the outstanding loan amount which means that the borrower is bailed out of any negative equity.

In simpler terms, in case the property loses its value, the owner wouldn’t need to pay more than how much his property is worth.

4. Benefit to Lenders:

A home loan insurance is not only beneficial to the borrower but also for the lenders. It immediately eliminates any risk of loan defaults allowing the lenders to give out more loans at a lower interest rate. Only when the lenders are assured that their money is safe from defaulters, they will be willing to spend more on lending and the loans too will be available at aggressive interest rates.

Additionally, home loan insurance can enhance the loan approving process and rates. Since the amount will be more secure with a loan insurance, quick loan approvals can benefit the borrower with faster access to funds.

5. Comprehensive Coverage Options:

Home loan insurance policies come with a wide range of coverage options that can be tailored according to the needs and the size of the loan the borrower is planning to take. The possibilities include many unforeseen happenings like critical illness, death, loss of jobs and even natural disasters!. Policies like these can prevent the borrower from the load of repayments.

6. Encouragement of Responsible Borrowing:

If the borrower is opting for a home loan insurance, it shows the lenders that the borrowers are responsible. Keeping in mind that they are opting for insurance, the borrowers will tailor the amount they need to borrow keeping in mind that the amount is well within their repayment limits. This enables the decline of default and financial distress to both the parties handling the money.

7. Tax Benefits:

Under section 80C, you can claim tax benefits on the premium paid on home loan insurance in INDIA. This is additional relief to the borrowers as it eases their expenses on the other side.

8. Long Term Stability:

Home loan insurance helps in long term financial stability for the borrowers. It looks after the financial needs and necessities of their home are met regardless of their personal circumstances. This long term stability is very important for individuals or families who look at a home not as a place to live in but as an investment in an asset.

In conclusion to this article, we can understand that home loan insurance offers a lot of benefits and flexibility that provide both financial security and peace of mind to the borrowers taking home loan insurance. It safeguards the family of the borrower from the burden of the debts while in distress situations like death, disability, loss of employment etc.

Home loan insurance also is an advantage to the lenders as they have less chances of facing defaulters. On a bird’s eye view, home loan insurance while not being mandatory, can be a huge asset to the borrowers in terms of tax benefits and financial security and it is also beneficial for the lenders as it eliminates a lot of chances for borrowers defaulting.

Log on to our website for amazing options on home loans and other loans and insurances too! Apply for home loan online in few clicks.

We are looking forward to serving you with hassle-free and easy service.

Also read: How to Increase Home Loan Eligibility - Tips and Tricks

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