buying term policy when you have a home loan

Owning a home is a common financial aspiration of every individual. However, achieving it isn’t as easy as it might seem. Buying a home requires a lot of prior financial planning and commitment on the part of the individual by cutting down on unnecessary expenditure, availing a home loan and paying its EMIs regularly every month. While availing a home loan can get him into his dream home, the real responsibility lies ahead in terms of regular EMI payment. Amidst shouldering such huge financial commitments like paying off a home loan, an individual may experience some unforeseen medical circumstances that could jeopardize his ability to pay the home loan’s EMI regularly, putting his housing dream at risk. To avoid such risks, life insurance is essential.

Purchasing a term policy can save the individual’s family the burden of paying off the loan in the event of his demise or disability. The term policy coverage shall not only take care of the outstanding home loan amount but also safeguard the family’s ownership claim to the property. Here are a few tips that can help while buying a term policy to secure a home loan:

Sum Assured: Opting for a term insurance plan that provides a sum assured of at least 10 times the annual income, plus the home loan amount, expenses and other liabilities would not only ensure financial safety for the beneficiary but also waive off their financial liability towards the home loan, in the absence or disability of the policy holder-cum-borrower. In such cases, the insurer is liable to pay the outstanding home loan amount from the policy’s sum assured to the lender without burdening the policyholder’s family.

Policy Term: Do not buy a term policy with a shorter tenure such as for 5 or 10 years. Instead, it is recommended to buy a term policy whose tenure is more than the loan duration or that can last till a borrower’s retirement age. For instance, if the home loan has a tenure of 15 or 20 years, taking a term policy of tenure shorter than the loan term will not cover the borrower’s family for the remaining part of the home loan period, once the term plan ends. Also, as the borrower ages into retirement, the financial responsibilities like loan repayment are fulfilled, assets are accumulated, and not many family members shall be dependent on the borrower, doing away the need for term policy cover for the home loan.

Detailed Disclosure of all health-related information: It is wise to disclose the complete information about the loan borrower’s health and lifestyle habits to the term insurance provider. Disclosing critical information like smoking, alcohol consumption, health ailments like diabetes, surgery history, and family’s health history shall help the insurance provider calculate the premium correctly to cover the beneficiary as well as the home loan amount in the event of the policyholder’s death or disability. Hiding any health-related facts shall be tantamount to breach of policy’s terms and conditions resulting in claim rejection putting the borrower’s family in trouble.

Don’t forget to add nominee name: While filling out the term policy form, it is recommended to carefully put out the nominee name. The nominee ideally must be spouse, or children and avoid putting very old people as nominees in general. A new term policy can be bought under the MWP (Marriage Women’s Protection Act, 1874) entitles the spouse and children as the beneficiaries of the sum assured in the policyholder’s absence, ensuring their financial safety in the future. If the term policy was taken long ago, review the policy nominee name regularly, and it’s better to change the name if preference has changed. Most importantly, inform the family that the term policy has been bought.

Choose a strong and reputed insurer brand: Last but not the least, it is vital to choose a term policy from a reputed and strong proven insurance company by reading its reviews online and checking their annual financial data. The Future Generali Flexi Online Term plan is one such robust policy of a reputed insurance brand that provides flexible coverage options with adequate basic life cover by offering a lump sum or monthly income protection to the family in the event of the policyholder’s death. The lump sum or the monthly income shall either assist the family to pay off the home loan liability in full or through monthly EMIs in the borrower’s absence. Other features of the plan include longer protection term, lower premiums for women, discount in premium for high sum assured, and tax exemption benefits under section 80C, 80D and section 10 of the Indian Income Tax Act.

An individual’s death or disability can completely throw his family’s existence out of gear, if he is the breadwinner of the family. In such situations, a term policy is extremely beneficial to pay off the home loan liability in the borrower-cum-policy holder’s absence or sudden disability. It eases off the extra financial burden of home loan liability on the family while they cope up with the loss of a dear one and deal with the family’s impending financial situation.