Buying a home is a dream for most people, and although affordable home loans can help you realise this dream, it comes with the responsibility of paying back. If you are your family’s sole or primary earner and there are mishaps such as death or disability, your family’s financial capability to pay home loan EMIs may be a challenge.
To mitigate these risks, it is crucial to secure a term insurance plan to secure your home loan. Know more about how these plans help shield your family from financial stress and guarantee their well-being during difficult periods.
How Term Insurance Plans Can Safeguard Your Home Loan?
Choosing a term insurance policy for your home loan can protect your family and your loan under one plan. Here are some compelling reasons to consider term insurance:
1. Protection Against Defaults
In case you lose your job due to a serious illness or become permanently disabled, handling EMI payments becomes a problem, and you might default. Most term plans include affordable optional, critical illness or disability benefits. In the event of a critical illness, the policy can provide financial support to meet medical costs and mortgage EMIs.
2. Consistent Coverage
A suitable term insurance policy should be ten times your annual income. For home loan borrowers, it is wise to make sure that your insurance takes care of the total balance of the loan. In contrast to home loan protection plans, where the coverage amount is reduced as you pay your EMI, term insurance retains the coverage amount throughout the policy period.
This means that even if you die after repaying the loan but before the policy term is over, your family will be able to receive the full amount of the term insurance.
3. Securing Your Asset
Being unable to pay your home loan can lead to losing your property. If you cannot meet your EMI obligations due to death or disability, you risk losing your home, and your family might have to sell other assets to keep up with payments. Term plans help prevent these tough situations, ensuring your home remains secure for your loved ones.
4. Affordable Premiums
Term insurance policies are budget-friendly, so it’s wise to link your term insurance with your home loan. This approach allows you to have one plan with a single premium that covers both your home loan and supports your family’s financial future, eliminating the need for additional separate coverage.
5. Flexibility in Changing Lenders
An independent term insurance policy allows you to switch your home loan to a different lender without forfeiting your already-paid premiums. In contrast, changing lenders with home loan protection plans often means losing those premiums and starting over.
With term insurance, you can easily choose another lender while keeping your coverage intact. After paying off your home loan, you can continue your term insurance to protect your family.
6. Better Policy Options
Most home loans come with standard protection plans that may not align with your needs, offering little flexibility. With term insurance, you can select from various life insurance providers and find the policy that best fits your requirements.
Additionally, term insurance typically does not involve extra commissions for middlemen, which is often the case with home loan protection plans.
7. Guaranteed Benefits
The sum assured to your family in the event of your death is guaranteed. This ensures your family is financially secure if something unexpected happens within the policy term. Your family can maintain their lifestyle even if some EMIs remain unpaid by opting for a higher coverage amount. The death benefit will cover those payments, relieving your family of financial stress.
How to Choose the Right Term Insurance Plan?
When selecting a life insurance policy, several important factors must be considered. Understanding your Human Life Value (HLV) helps determine the right coverage amount and any necessary riders. Here are some essential points you need to keep in mind:
- Claim Settlement Ratio of the Insurer
One critical aspect is the insurer’s claim settlement ratio. It indicates the percentage of claims settled compared to those received. Choose an insurer with a high ratio to ensure your dependents receive prompt and efficient claim processing, securing your family’s financial future.
More settled claims also indicate the insurer’s commitment to its responsibilities.
- Solvency Ratio
The Solvency Ratio indicates whether your insurance provider has enough financial resources to pay out all claims in extreme situations like natural disasters. The Insurance Regulatory and Development Authority of India (IRDAI) requires a minimum solvency ratio of 1.5, which reflects the insurer’s ability to meet its long-term obligations.
- Critical Illness Cover
Adding a critical illness rider to your term insurance is essential, as it helps cover the financial impact of severe health issues such as cancer or major surgeries. This rider provides a lump-sum payout upon diagnosis, relieving the financial burden of expensive treatments and helping maintain your family’s standard of living.
- Additional Covers Availability
To enhance family protection, consider these additional options in your term life insurance: The premium waiver ensures coverage continues without future premium payments if the insured becomes disabled. The accidental death benefit increases the payout for accidental deaths, often matching the original coverage amount.
Lastly, the income benefit provides your family a regular monthly income instead of a lump sum, ensuring ongoing financial support. These features add significant value to your term insurance plan.
- Premium Cost
While the premium cost of a term insurance plan is important, it should not overshadow the value of the protection it provides. Look for plans that offer comprehensive coverage and essential riders at reasonable rates.
You can also find term insurance more affordable by choosing flexible payment methods and taking advantage of tax benefits under Section 80C and Section 80D.
Thus, a term insurance plan protects your home loan risks. By choosing the right coverage, adding useful riders, and considering factors like claim settlement and solvency ratios, you can ensure comprehensive coverage at an affordable cost. Securing your home and loved ones’ future with a reliable term plan is a wise decision that brings peace of mind.
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