The fine print: Want cover for your home loan EMIs?

When buying a home loan insurance policy, check the various risks covered under the policy apart from death and total disability.

How To Read A Home Loan Insurance Policy
A home loan insurance policy is a legal document; therefore, you cannot afford to sign it without reading the terms and conditions.

A house is your social and financial security. If a home loan has helped financed the purchase and the main borrower dies, the entire family suffers and may even have to let go of the house if the surviving members cannot service the loan. While purchasing a home loan insurance policy, you must read the terms and conditions of the agreement carefully to avoid a dispute. A home loan insurance policy is a legal document; therefore, you cannot afford to sign it without reading the terms and conditions. Here is what you must be careful about.

How home loan insurance works

Home loan insurance is a risk mitigation tool. It ensures that the borrower’s dependents are not burdened with the loan EMIs in his absence. In case of the borrower’s untimely death or terminal illness, the insurance company repays the outstanding loan amount on behalf of the borrower. Apart from covering financial risk related to the death/disability of the borrower, the home loan insurance may also cover emergencies such as losses due to burglary and fire, subject to a maximum ceiling of the sum insured.

Also read SBI’s home loan EMIs to rise as lending rate hiked again

Home loan insurance allows the borrower to pay the premium in a single payment or regular installments. Premiums paid on home loan insurance are eligible for deduction under Section 80C, and the death benefit is tax-free under Section 10(10D).

Read fine print carefully

While the basic feature of home loan insurance products is similar across all companies, they may vary in terms of additional features offered along with it. Coverage of the outstanding home loan amount on the borrower’s death is common across all insurance companies. However, depending on the product, the insurer may offer benefits like separate cover for meeting the cost of a major disease, accidental death benefit, etc.

Soumee Bhatt, general counsel,, explains, “When buying a home loan insurance policy, check out the various risks covered under the policy apart from death and total disability. One thing you can check is the surrender value. For instance, when the loan is transferred to another lender, the coverage may cease. You may be able to get a surrender value from a fully paid-up policy and buy another policy to cover your new loan.”

Another important point you must check is coverage towards a change in the repayment obligation due to a change in the floating interest rate. Currently, the interest rate is going up, which means your total repayment obligation will also increase. So, the home loan insurance should also automatically increase its coverage with a change in the interest rate. You will get this detail while reading the fine print mentioned in the insurance document.

Also read How to finish your 20-year home loan in 10 years: Manage Your Money

Check for inclusions and exclusions

The list of exclusions may vary from company to company and depends on the insurance policy’s features. Check whether disability due to mental disorder is included or excluded in the policy. You may also check whether death due to pregnancy is included or excluded from the coverage list. Some common exclusions may include pre-existing disability and injuries, intentional self-injury, suicide, damage due to acts of enemy and war, etc. Avoid the insurance product with a long list of exclusions, whereas preferring the insurance product offering you wider coverage and has a long list of inclusions.

Things to keep in mind

Remember, home loan insurance is not the same as home insurance. However, home loan insurance may also offer you coverage on your home structure and belongings to the extent of your outstanding home loan amount. Some insurance policies allow a flat coverage and continue to offer protection despite prepayment of the loan amount, so you may check this option while buying a home loan insurance product. You can check for add-ons such as critical illness, partial disability, and income protection due to job loss for enhanced benefit while buying a home loan insurance cover.

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