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Insurance needs arising out of a home and home loan

Let’s look at each one of them in detail

1. Property Insurance

Scope: Covers damage to the property on account of fire & other natural disasters

Key Points

a) The one time premium can be added to the loan amount or paid separately depending on the bank and their general insurance partners

b) Some banks mandate it and some do not

c) Cost depends on the size of the property

d) Tenure will generally be same as that of the home loan. Some banks are fine with a lower tenure

Our Take: If Mukesh Ambani’s house, Antila, can catch fire, any other house in India can and therefore the potential damage has to be insured for. Should we say anything more?

2. Home Loan Insurance

Scope: Covers the outstanding home loan amount in case of a premature loss of life of applicant/s

Key Points

a) It is a life insurance product & not general insurance

b) The one time premium can be added to the loan amount or paid separately depending on the bank and their life insurance partners

c) It is not mandatory although banks will try to sell this

Limitation:

a) Coverage is restricted to outstanding loan amount

b) Suppose you close a 20 year loan in 8 years time the coverage ceases to exist

Our Take: A better option would be a term life insurance which eliminates the above limitations

3. Term Life Insurance

Scope: Covers a “well thought-out amount” in case of premature loss of life of applicant/s

Key Points

a) Well Thought-out Coverage Amount & Tenure – It’s generally 10 times your annual package plus all outstanding loan amounts that you have or intend to take in the near future and covered for a tenure of atleast your remaining work life.

b) It can be kept separate from the home loan and the premiums(one time or annual) can be serviced separately aswell

c) Irrespective of how soon you close the home loan the full coverage will continue for the entire tenure of the term insurance

d) It is not mandatory for home loan but it is necessary from your family’s financial safety

Our Take: Life is uncertain. Should we say anything more?