Home loan insurance: What is a home loan protection plan? Check features, income tax benefits

Home loan insurance: Building or buying a dream home is a major investment which involves a long-term financial commitment for the borrower and his/her entire family. Opting for a home loan ties one down to repaying regular equated monthly instalments (EMIs). 

Various banks offer home loan insurance along with home loans, which provides security, as the surviving family members are not hassled to repay the loan dues in case the borrower passes away.

The Reserve Bank of India, RBI and or IRDA have no guidelines regarding home loan insurance, and it is not mandatory. However, banks and financial institutions offer home insurance to loanees.

What is home loan insurance?

Home loan insurance or Home Loan Protection Plan is a protection plan for home loans. Most banks offer home loan insurance alongwith home loan when you borrow to buy your dwelling.

Under this insurance policy, the loan provider settles the payment of the home loan amount with banks, NBFCs or housing finance companies, in case of the death of the borrower.

How to buy home loan insurance

If a customer wishes to buy home loan insurance, then they can deposit the insurance premium in a lump sum or as monthly instalments alongwith the home loan EMI.  

The monthly instalment of home loan insurance will also be deducted alongwith the home loan EMI. 

Benefits of home loan insurance  

Protects your family

In case the borrower passes away, then their family is expected to pay the remaining loan instalments. However, if the family is unable to repay the loan, then they are asked to vacate the house. Home loan insurance takes care of this problem.

Once the borrower opts for home loan insurance, then even after their demise, their family is not forced to repay the home loan or vacate their home due to non-payment of the loan dues.

Protects the Asset and other collaterals

In case the home loan borrower passes away,  then the house in question and other valuable assets can be seized by the lender to repay the outstanding loan amount. In certain cases, even if the family members manage to save the house, they still end up losing their valuables. In such a scenario, home loan insurance can be used to repay the outstanding loan amount.

Tax benefits

Those paying for home loan insurance can also avail tax deductions under Section 80C of the Income Tax Act 1961 on the premium being paid for the home loan protection cover.