Do You Have A House Loan? Here's Why You Need A Term Plan

Most people opt for a home loan to help achieve their dream. Should you opt to take a loan, you must remember that the lender will not provide you with the whole amount. Apart from the 20% down payment, you will also have to pay the stamp duty and other registration charges. The loan provider will provide you with up to 80% of the value of the property. They will allow you to choose a loan term that extends up to 30 years but will charge you an interest every year. You will have to pay the loan back over time with the help of Equated Monthly Instalments or EMIs. As a general rule of thumb, the EMI for your home loan should not be more than 50% of your monthly income. By following this principle, you can avoid stretching your budget beyond reason.

Why Should I Cover MyHome Loan?

Paying your EMIs when you have a steady income is easy. But, have you thought about how your family will get by if something happens to you? If you’re the primary earner or breadwinner, your salary helps your family survive and thrive. Without it, they might default on the loan. If this happens, the lender could repossess the property. So not only will your family be left in financial distress, but they could also end up without a home. With all this in mind, securing your home loan with a term plan makes complete sense.

Your term insurance plan provides you with financial security when you need it the most. If you aren't around to provide for your family anymore, the term policy payout will help them repay the loan.

Why Term Plans?

There are a few different ways in which you can secure your loan. There are specific loan care products available in the market. But, most people opt for a term plan instead. Here’s a look at why a term policy is the best choice to secure your home loan:

• Higher Cover for Affordable Premiums

Term plans are pure protection plans. They do not offer additional maturity benefits, making them the most affordable life insurance product in the market. You can get a life cover of INR 2 crores for just INR 1,000 per month with a term insurance plan. Ideally, opt for a life cover that is a little more than your home loan amount. The payout from the policy will enable your nominee to pay off the loan without any worries.

• Fixed Benefit Amount

If you opt for a loan cover insurance plan, the cover amount depends on the pending loan payments. So, the cover amount decreases over time. When you purchase a term plan, the sum assured remains the same, irrespective of your loans. Since these policies offer a fixed benefit, they are often viewed as the safer option to secure your home loan.

• Transfer Support

At some point, you may choose to switch your home loan from one lender to another. If you do this, it could affect your interest rate and EMI amounts. Since a loan insurance policy depends on the loan and repayment, you could end up with a lot of paperwork to complete the transfer. Thankfully, term plans are not contingent on other details. So even if you transfer your loan from one lender to another, your term plan will continue to provide the same amount of cover.

Conclusion

Your sum assured amount should be equal to your loan and interest repayment amounts. You can opt for a policy that offers higher coverage. But, you should avoid agreeing to anything lower. If your policy cannot help your family repay the loan, it might not be worth it.

Also read- A Detailed Differences Between Whole Life And Term Life Insurance Policies?

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