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Term Insurance for Home Loan



If your family falls catch them …if you are not there to catch them make sure your term life insurance policy does. If you have to succeed in life you need to make few mistakes. Not taking a term life insurance policy for your home loan can be a costly mistake.

Life today is very fast and playing catch up means availing loans. Today loans especially home loans help build you that dream home and Yes… EMI’s are steep. You are barely able to pay your home loan EMI’s on time…How would your family pay these EMI’s when you are gone.....

Should you take a term insurance for home loan?



You can take a level term life insurance policy a type of term insurance which would give your family, money (sum assured) on your death. This money could pay back the home loan.

A level term life insurance policy means you pay a fixed premium per year (This amount does not change) for a fixed time period. You must take this policy for the period/tenure you have to repay the home loan. If you survive the term/tenure of the policy you get nothing and lose all the premium you have paid.

If the time you have to repay the home loan is 25 years you must have a level term life insurance policy of the same tenure. You can take this policy across your working years so that you can easily pay the premium.

But is a level term life insurance policy the best option?

If you take a level term life insurance policy you would have to choose a sum assured (Money your family gets on your death) not only to repay the home loan amount taken but also leave enough to meet your family’s expenses.

This means a high premium as the sum assured needs to be sufficient to repay the home loan and provide for your family (Meet all expenses both daily and unexpected) in your absence.

You could take



A decreasing term life insurance policy which specifically insures/covers your home loan . Your home loan reduces with time as you repay it.

This means.....You pay a lesser premium

Your home loan does not remain the same but decreases as it is repaid in time. If you had availed a home loan of INR 50 Lakhs for tenure of 20 years at an interest rate of 10.5% you would have paid back a number of EMI’s after say 10 years.

If you die at this point .....

Your home loan liability is much lesser than INR 50 Lakhs. If you die before the tenure of the home loan the decreasing term life insurance policy has to make a payout (Pay back your home loan) depending on the amount of home loan left behind.

How does this help you?

If you take a level term life insurance policy the money your family gets on your death covers the entire home loan you have availed as well as any expenses (Foreseen and unforeseen) they would incur. This means you are paying a higher premium as you are needlessly insuring the entire home loan amount availed which is much lesser with time.

A decreasing term life insurance policy covers only the home loan which decreases as you repay it. No matter when you die your home loan is taken care of. This means a lesser premium as you don’t have to insure the home loan amounts you have already repaid.

You can

Take another term life insurance policy with riders to cover the foreseen and unforeseen expenses your family would incur if you are not around.

Wouldn’t it be a great idea taking a term insurance for wife...

Families today are double income families. If your wife works she contributes money to the family.

Her death means...

Lower quality of life as less money is available to provide a good education for your children and their marriage.

Her death though a sad event means.....

If you have availed a joint home loan (In your’s and wife’s name) you will have to repay this amount alone. You must take a term insurance policy in your wife’s name if you have a joint home loan. If your wife dies the sum assured you get is tax free and this amount can be used to pay back most or the whole of the home loan amount. If both of you die (in an accident) then your children will get money from both yours and your wife’s term insurance policies.

Riders

You could also take a critical illness rider along with the term insurance policy in your wife’s name. If she suffers a critical illness (accident causing disability or a heart attack) the lump sum paid by the policy helps to pay the medical expenses.

What if you don’t have children...

You might not have to worry about children’s education and marriage. You might have elderly parents and in-laws who need to be looked after and the sum assured of the term plan (in your wife’s name) helps to bear the high medical and other expenses needed for their upkeep. There is no doubt that a term insurance plan, taken to cover home loan is a good idea.

Insurance
Term Insurance