Home Loan Insurance vs Term Insurance

• Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
• Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
• Do more with plans that offer pure protection, retirement planning and investment options

Buying a home for yourself is one of the many important goals we have. Understandably, you will take a home loan in order to realise your dream of having a house of your own in the future. But what if something happens to you? You surely, wouldn’t want your family to be burdened with any immediate loan liabilities or loan sharks troubling your loved ones for the payment of the loan amount. Hence, taking an insurance cover against your loan becomes important. You can choose between a term insurance plan or home loan insurance plan. But which one is better for you if you have availed a home loan and want some kind of security against it?

Term Insurance

A term insurance plan can be availed for a limited period of time. It is generally cheaper in nature and aims to provide cover to you and your family. A term insurance can be a good idea if you have availed a home loan since your immediate loan liabilities will be cleared off if something happens to you provided the policy is still in force.

Home Loan Insurance

A home loan insurance as the name suggests aims to cover the insured and pays off the immediate loan liabilities in case of his/her unfortunate death. One of the many differences between a term and home loan insurance is that the latter is slightly expensive as compared to the former.

Which one is better to avail?

Whether you want to avail a term insurance or a home loan insurance depends on your long-term goals. We will try to compare both types of insurance and see which one is better.

• Affordability- Buying a term insurance plan is more affordable as compared to a home loan insurance plan. It is cheaper as you buy a term insurance for a fixed period of time and pay your premiums accordingly. The sum assured chosen by you will not depend in any manner on your loan amount.Home loan insurance works slightly works differently. As you approach a bank or a non-banking financial company for a loan, they will offer you a home loan insurance. The cover, in this case, will be packed with your loan amount. So, if tomorrow something is to happen to you, the bank will ensure that your loan amount is covered, except that it is slightly more expensive to avail this type of insurance for you are also paying premiums with interest on your home loan from your own pocket. Apart from that, on availing a home loan the lender may only provide a loan amount up to 80% of the total property cost while the rest has to be paid from your own pocket. Thus, it is better to avail a term insurance plan rather than buy a home loan insurance protection plan.
• Lenders- In case you don’t agree with the terms and conditions of the term insurance plan or if you feel that the plan is not going to help you clear your loan, you can always change your insurer or the plan and purchase a new one. The same is also applicable if you are availing a home loan insurance plan. You can easily transfer the loan to another lender which may offer you a lower rate of interest.
• Benefits- On purchasing a term insurance, you can be certain of enjoying some benefits including tax benefits. On buying a term insurance plan you can be eligible for tax benefits under the Income Tax Act,1961 and claim a deduction of up to Rs.1.5 lakh. The same may not be applicable if you have purchased a home loan insurance. Here the loan cover comes bundled with the loan amount. If you pay your premiums then you can be eligible for tax benefits. If it's the lender who has cleared your premium included with your loan amount, then you cannot enjoy those tax benefits.
• Reduction in cover- As you pay your loans through EMIs, the cover gets reduced. This is not the case in a term insurance plan. The plan details are standard in nature and may not be modified. For example, if you have availed a loan of Rs.50 lakh, the cover provided in a term insurance may not be equal to your loan amount. You might have a cover of Rs.70 lakh and once you clear your loan, you still have a cover of Rs.20 lakh for yourself. This is not applicable in a home loan insurance.

The table below summarises the comparison between a term insurance plan and a home loan insurance

There are various insurers who provide term insurance plans as well as home loan insurance plans.

Some of the term insurance plans that you can purchase if you are availing a home loan are:

• HDFC Click2Protect Plus
• Birla Sun Life Future Guard Plan
• LIC’s Jeevan Rakshak Plan
• Aegon Life iTerm Insurance Plan

Some of the home loan insurance protection plans you can purchase if you are availing a home loan are:

• HDFC Life Home Loan Protection Plan
• LIC Mortgage Redemption Plan

In the end, we can see that it is very much recommended that you purchase a term insurance product rather than a home loan insurance protection plan. Not only is it cheaper when it comes to buying a term insurance plan, but you are also eligible for various benefits including tax benefits. In a home loan insurance, you may or may not be eligible for tax benefits. In case you are not satisfied with what the product has to offer, you can always choose to buy another term insurance plan from another insurer. Your term insurance has nothing to do with your loan amount and you can choose your cover amount based on your financial capabilities. In a home loan insurance, the cover provided will be equal to the loan amount and it only concentrates on ensuring that your loan amount is cleared.

Hence, purchasing a pure vanilla term insurance plan will be more helpful for you when it comes to clearing off your loan incase something happens to you.