Is term insurance a better option than house loan insurance?

Insurance is a valuable financial tool that may help individuals guarantee the future of their families. Both home loan insurance and term insurance are essential forms of insurance. Although house loan insurance offers various advantages, experts believe that term insurance is a more cost-effective option. We go deeper into the term insurance idea.

Although there are several forms of house mortgage insurance, such as term insurance and home loan insurance, let us first explore how insurance may aid you in difficult times.

Mortgage protection insurance

Because of the uncertainties of life, it is critical that house loan borrowers insure their loans against events such as death, sickness, incapacity, and unemployment. It helps the borrower or his family to settle the outstanding loan burden even during difficult circumstances, so avoiding property foreclosure. Furthermore, insurance coverage entitles you to tax savings, subject to certain criteria.

What exactly is term insurance?

Term insurance is the most affordable type of life insurance, making the insured’s dependents eligible for a lump sum payment in the event of his death. These plans can be expanded to cover sicknesses as well. According to experts, a term insurance policy can cover all liabilities, along with the home loan. Individuals who have insurance but it is insufficient might have it enhanced while applying for a house loan, rather than purchasing a separate home loan insurance policy.

Term insurance’s main characteristics

Period

Term insurance contracts can last anywhere from five to 25 years and can cover a person’s whole life.

Tax advantages

Term insurance is tax-exempt under Sections 80(C), 10(10D), and, in some situations, Section 80D.

Age requirements

The minimum age for term insurance is 18 years, and the maximum age restriction is 65 years, with optional add-on benefits available at your discretion.

Advantages of Survival/Maturity

A typical term insurance policy provides no survival or maturity rewards. Those seeking the same might check into Term Return of Premium (TROP) policies.

How does term insurance compare to mortgage insurance?

Term policies are less expensive than house loan insurance for the same sum insured.

Home loan insurance plans are typically packaged with the loan. Because banks often partner with a single insurance firm, you will be unable to evaluate the coverage being provided to others on the market. Conversely, term insurance may be purchased individually on the free market after analysing all insurance providers’ offerings.

In the event of house loan insurance, banks may refuse to enable you to pay for it separately. Because the premium is frequently included in the overall loan amount, it tends to raise the Equated Monthly Instalments (EMI). Term insurance premiums, on the other hand, may be charged extra and do not accrue interest, with exception of house loan insurance.

As the principle is paid off, the coverage offered by home loan insurance diminishes. In the instance of a term plan, though, the insurance coverage remains continuous and can assist the borrower’s family in the event of unexpected death. 

In the event of the borrower’s untimely death, the term insurance distributes the whole insured sum to the beneficiaries, which can also be used for other reasons. A house loan insurance plan, on the other hand, only pays out death claims equal to the loan amount, which is paid straight to the lender without the participation of the borrower’s survivor.

Finally, if your responsibility is limited to your house loan, you might consider purchasing home loan insurance because the sum assured falls as the outstanding debt is reduced.  However, once term insurance is obtained, it covers a certain sum for a specified period with a consistent premium amount.” There is also a minor component in term insurance that covers not just life but also severe diseases. Many individuals get home loan insurance when purchasing a new house, but term insurance can also be advantageous.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.