The main difference is that home loan insurance covers property, while a term policy covers a person’s life
So your home loan has finally been disbursed and you can now proudly
call yourself a homeowner. This is indeed one of the most cherished and
expensive investments you’ll make in your life.
But have you ever
thought of the possibility of something happening to you before you pay
your full home loan? Your liabilities will be handed over to your family
members, leaving them under financial stress.
While there are various things to consider before investing in a house,
we often neglect important add-ons such as an insurance policy that
covers your home loan repayments. There are two ways to prevent your
family from the burden of such liabilities –home loan insurance or aterm insurance policy.
Both policies provide cover against financial stress. The main
difference between them is that a home loan covers the property, while a
term policy covers a person’s life. Let’s dig deeper to understand the
differences.
Premium charges
Depending on needs and the current financing status, one can choose
either type of cover. Term insurance allows the policyholder to pay a
monthly or annual premium, which makes it less expensive. However, an
extended period of inflation could significantly reduce its value.
Comparatively, home loan insurance is added to the home loan, which
makes it more expensive. At the same time, it protects homeowners during
the loan term, providing the benefit of owning property at a much lower
cost.
Policy cover
Term insurance is a type of insurance that covers the life of a person
for a specific period or term – from one month to 30 years. But it is
important to note that it only covers the risk of death during the term
period.
Home loan insurance protects the lender against a default by the
borrower due to unemployment, disability or death. When the outstanding
home loan is repaid, the coverage ends. However, if the borrower dies
within the tenure, the policy pays the outstanding home loan balance.
Tax benefits
A person who takes a home loan already saves tax and is offered
deductions under Section 80C of the Income Tax Act. Since home loan
insurance is added to the home loan, it offers the same benefits.
Term insurance holders also get deductions under Section 80C.
Comparing the two based on tax benefits doesn’t show much difference.
However, the benefits may differ depending on the loan duration.
Rider benefits
One of the biggest benefits of home loan insurance is that it comes with
add-ons such as coverage for unemployment, disability and chronic
illnesses.
However, on paying additional premium, term plans also offer similar
cover. However, because there is a rise in cost by adding the riders,
one should weigh the options and do a fair comparison according to your
needs.
Which to opt for?
If you think you might need the money from the life cover, then term
coverage may be the best. If it is more likely that your home will need
to be sold to repay your debt, then a home loan insurance plan may work better.
A home loan insurance policy takes care of a large section of life’s
finances. So it is best suited for those repaying the amount through
monthly instalments. One can also repay an EMI with tax deductions by
opting for this product as it has been approved by the income tax
department as revenue expenditure.
