What is home loan insurance? Is it compulsory to take home loan insurance?

Homeownership — is an important milestone for many of us. However, if one wants high-priced properties, a home loan then becomes imperative. Lenders of home loans sometimes advise or demand a type of insurance specifically related to loan borrowing for a house. But what is home loan insurance/ insurance against home loan, and should we have it? Let's explore this thoroughly.

Home loan insurance ensures the security of events that will arise unexpectedly like untimely death of the borrower, critical illness or permanent disability of the borrower that the borrower's family is safe guarded financially. For instance, the lender cosigns a large sum of money typically repaid over 10 to 30 years when you take a home loan. Is home loan insurance compulsory? Uncertainties including accidents, health problems, or even death can strike any time so it is better to have one. It functions much as Home Loan Insurance Policy, a cushion.

Should an insured event take place, the insurance company pays your lender the remaining loan balance. Your family also does not have to be left with the financial responsibility and emotional turmoil.

a) Preserving the Financial Stability of Your Family

provides protection from having to pay off the home loan in case you are not around, which is one of the main advantages of a home loan insurance policy that benefits your family.

b) Prevents Loan Default

A home loan insurance policy protects you against defaulting on your loan as the insurance company clears up the pending dues for you.

c) Comprehensive Coverage

Most policies also have add-ons for critical illness, job loss or disability coverage, so home loan insurance would be more comprehensive than regular property insurance for home loan.

a) Premium Costs

Premium on home loan insurance becomes the deciding factor for your premium amount — which depends on multiple factors, such as the amount and period of loan, as well as the age and health of the borrower. Be aware of premium costs and if they fit into your budget.

b) Add-On Riders

Many policies offer additional riders you can add for critical illness, accidental death or job loss. Weigh whether these extras are worth the cost.

c) Single vs. Annual Premium

While a single premium is convenient, it makes the loan amount larger and will, thus, increase the EMIs too. Think about whether it would make more sense to enroll in a plan with annual premiums.

Choosing between all of them is a daunting experience, knowing what policy is the well fitted one for you. Here are some tips:

a) Compare Policies

Get multiple quotes and find the most suitable coverage for your premium costs.

b) Checking Claim Settlement Ratio

In order for your claim to be settled without any hassle, pick an insurer that has a high claim settlement ratio.

c) Customisation

Look for policies that can be tailored with optional extras like critical illness or disability cover.

d) Integration with Loan

Check if the home insurance premium can be bundled with your home loan for easier repayments.

You can choose not to buy home loan insurance if you are sure of your financial stability and have other types of insurance like term insurance or life insurance. Some lenders also give you the option to pledge alternative cash as collateral instead of taking an insurance policy.

For many borrowers, home loan insurance is a great investment. It acts as a safety net — your loved ones won’t have to struggle with paying off loans without you. Keeping the lender’s interest in check whilst also making it good for all parties.