Understand If It Is Mandatory to Take Insurance for a Home Loan

As the requirement for housing loans rises, the need to purchase an insurance plan along with the loan increases too. It is because these insurance plans provide financial cushioning to the borrower and cover them against situations where they may default on repayment. However, it is not at all mandatory to take insurance for these loans as per the instructions of the regulatory bodies like RBI and IRDAI.

Nevertheless, insurance plans have become an integral part of these loans due to their far-reaching benefits. No wonder, some reputed financial institutions bring these plans as a complementary facility along with their housing loans. Borrowers can thus enjoy this facility against the payment of a nominal premium.

Insurance on home loans – Why do lenders provide it

Repayment of a housing loan involves additional expense as monthly installments. As for the meeting, this obligation is necessary, an insurance plan provides for unforeseen contingencies like borrower’s demise or severe. In such cases, where the liability may shift to family members, an insurance cover can absorb this emergency requirement and keep close relatives away from financial. As a result, it helps in maintaining financial stability. The cover suffices for the loan amount and interest accrued and helps pay off the liability.

Know how an insurance cover on housing loan works

Financial institutions generally provide a single-premium term insurance plan where they add the premium amount to the loan. The borrower doesn’t have to pay anything upfront and yet gets the loan covered. Although it may increase the EMI by a margin, the cover it provides is immensely beneficial as compared to the cost. 

Understanding the premium of home loan insurance cover

The premium payment and insurance cover are explained with the help of an example below. Suppose you take a housing loan for Rs. 30 lakhs for 15 years and additionally buy insurance to cover it. Your average annual premium is nearly Rs. 3,200 summing up to Rs. 48,000 for 15 years. On the other hand, opting for a single premium cost you around Rs. 34,000 for 15 years. 

As for tax benefits, while single-premium insurance plans do not provide this, you can avail tax benefit under section 80C on term insurance. Along with this way to save tax, a term insurance plan also allows you to switch along the insurance plan if you opt for a balance transfer facility.

The implication of insurance plan on top-up loan

If you already have a pre-existing insurance plan, you can get an additional top-up cover which is equal to the borrowed amount. For example, if you already have a life insurance cover of Rs. 50 Lakh and require a home loan of Rs. 30 Lakh, your best option should be to get additional insurance of Rs. 30 Lakh as well. This is how you benefit from a top-up loan.

Leading non-banking financial institutions offer easy home loans with attractive rates and also other benefits. The loans from lenders like Bajaj Finserv are customized to meet your personal needs. Their types of housing loans in India are structured in such a way that you benefit from the benefits big time. 

Before applying for any loan, you must also know about the necessary eligibility criteria for housing loan and documentation required. Fulfilling them can help you avail easy housing loans with or without an insurance cover as per your requirement.