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Term insurance for home loans ensures your outstanding mortgage is fully repaid in the event of the policyholder's death. This plan is a fundamental safeguard to protect your family from a significant financial liability.
A plan for a home loan is a policy specifically designed to cover your outstanding home loan in case of your untimely death. Should this happen during the loan tenure, the insurance payout helps your family repay the remaining loan amount. Term insurance for home loan protection ensures they do not face financial distress or risk losing their home due to a loan default.
While not mandatory, such a plan acts as a safety net as it offers a high sum assured. You must choose a coverage amount that matches your loan and keep the premiums within your budget.
You must prepare for the financial uncertainties that any family can potentially face. A home loan is a significant long-term liability that absolutely requires its own protection. The benefits of term insurance are designed for this exact scenario. The home loan protection insurance provides significant financial relief. A life insurance for home loan is an affordable solution that delivers the following key advantages:
If something happens to you, your family will not be forced to dip into their savings or sell assets to pay off the home loan. The insurance payout is designed to clear the remaining loan on time, which allows them to keep the house.
Term insurance provides an extremely cost-effective method for securing a very large home loan amount. The fixed policy term means you get access to much lower premiums than other insurance options, which is a highly practical benefit.
You can choose a sum assured that matches your loan amount and opt for decreasing cover plans, where the coverage reduces as the loan is repaid. You can also add additional riders to enhance the plan’s coverage.
Your paid premiums qualify for tax deductions under Section 80C of the Income Tax Act and directly lower your overall taxable income. The death benefit payout received by your nominee is also designated as completely tax-free under the rules of Section 10(10D).
A secured home loan delivers long-term financial stability directly to your family. They are able to continue their lives in the home without the immense pressure of mortgage debt or any related financial strain.
Term insurance plans function as a crucial financial safeguard against home loan risks. Should the policyholder’s death occur during the loan tenure, the insurance benefit is paid out to clear the outstanding loan balance. Your nominee can receive this payout as a single lump sum or through a structured series of periodic installments. A substantial policy, for instance, a ₹1 crore term insurance plan, delivers a sum large enough to clear significant mortgage debt and also address other family financial needs. The loan is therefore settled completely and efficiently.
For example, suppose Amit takes a ₹50 lakh home loan for 20 years and also buys a term insurance policy of the same amount. If he unexpectedly passes away after 10 years, when his outstanding loan is ₹30 lakh, his family uses the insurance payout to repay the remaining loan. This action removes the burden of loan EMIs, and his family continues living in the house without any financial stress.
Now that we have answered ‘What are term plans’ and ‘How do home loan help you?’, let us look at why we should choose them in combination:
Term insurance offers premiums that are more affordable with higher coverage. A term plan tied to a house loan typically features a mechanism where the cover lowers as the loan is paid off and is intended so that the cover is zero by the end of the term, leaving no balance. In a term life insurance policy, the sum assured remains the same. Therefore, we get the balance amount after the payment of the home loan as well, which can be used to meet other needs.
The best home loan insurance policy in India ensures the most significant financial security for us and our loved ones, so choosing a suitable one becomes essential to making our dreams of having the ideal home come true.
So, now you know what a term plan is and what its significance is for home loans. Whenever you are investing in home loan term insurance, you can secure the home loan by correctly calculating the amount of the sum assured that may be needed. To ensure this, it is recommended that they opt for the best home loan protection plan with coverage of at least 10-15 times their annual income and add to it the amount of the home loan.
Pairing your home loan with a term insurance policy unlocks significant tax-saving advantages under multiple sections of the Income Tax Act. The provisions within the act exist to lower your overall tax liability.
These deductions directly reduce your taxable income and simplify the management of your home loan and insurance premium payments. Please note that all tax benefits are governed by the prevailing tax laws at the time, and availability may depend on whether you follow the old or new tax regime.
You must be deliberate when selecting a term insurance plan to cover your home loan.
A complete evaluation of your home loan, living expenses, and future goals is mandatory to establish the proper sum assured for your policy. This detailed assessment creates a financial safety net that is accurately sized for all potential needs.
You should confirm your required coverage amount by consulting a financial expert or by using an online term insurance calculator. The final sum assured will be sufficient to eliminate the entire home loan and also guarantee your family’s long-term financial stability.
The right riders add critical layers of protection to your base policy. A critical illness rider gives you a lump sum payout to handle medical costs, which protects your personal savings. A waiver of premium rider ensures your policy stays active if a severe illness or disability prevents you from making payments.
A term insurance plan for your home loan is an essential component of sound financial planning. It is the single most effective strategy to clear your largest debt and deliver critical financial security to your family. The right plan provides true flexibility, strong rider protection, and important tax advantages, forming a key part of your financial legacy.
1
You should buy term insurance to guarantee your family can keep their home without any financial strain. The policy pays off your entire outstanding mortgage if you are no longer there to do so, protecting them from a massive debt.
2
In the event of your death during the policy term, the insurance plan pays out the sum assured to your nominee. This money is then used to completely settle the outstanding home loan balance with the lender, effectively eliminating the debt.
3
No, there is no legal mandate that requires you to have term insurance for a home loan. However, most lending institutions will strongly recommend or even require it as a prerequisite for approving your loan application to secure their financial risk.
4
A regular term insurance policy offers a fixed, level sum assured that does not change throughout the entire policy duration. In contrast, home loan protection plans are typically decreasing term policies, where the coverage amount reduces over time in sync with your decreasing loan balance.
5
Yes, you can use an existing term insurance policy for your home loan. You must first verify that the current sum assured is high enough to cover the entire home loan amount while also leaving sufficient funds for your family’s other financial needs.
6
The sum assured for a term plan covering a home loan should always be at least equal to the full principal amount of your loan. It is often recommended to select a sum assured that is slightly higher to also account for interest and other unforeseen expenses.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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