Home Insurance Vs Home Loan

Insurance policies allow to secure one’s future liabilities in the event of any untoward incident. Home buyers are encouraged to buy both home insurance and home loan insurance , at the time of transaction . In this article, we list the differences between the two and elaborate why investing in each is important for future security.

What is Home Insurance?

Home insurance policies protect the consumer against any structural damage to the property, in the event of man-made or natural calamities. For apartments, insurers usually arrive at the value of the flat, to assure an amount. For example, for a house of 1,000 sq ft, equivalent to Rs 2,000 per sq ft, banks will provide a cover of Rs 20 lakh.

What does a home insurance policy cover?

Generally, home insurance policies cover your loss due to natural calamities like flood, storm, earthquake etc. and man-made calamities like fire, riot, strike, etc.

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It is to be noted that home insurance policies cover only specific damages and the customer should read the policy carefully to know what is outside the purview of the cover. Tailor-made plans are also offered by insurance companies to meet individual needs.

See also: Home insurance policy types and what they cover against natural and man-made calamities

Note

    • Sold as a part of home loan: Home insurance policies are often sold as part of a home loan. If you apply for a home loan from public lender SBI, for example, they offer you a home protection plan as part of the deal.
    • Cheaper than home loan insurance: Comparison of home insurance policies is less as compared to home loan insurance policies.

 

Who can take a home insurance policy?

Both the property owner and the tenant can buy home insurance.

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What is Home Loan Insurance?

home loan insurance guarantees protection, in case the borrower is unable to meet his liabilities due to an unforeseen situation. Home loan insurance also offers buyers an opportunity to borrow a larger amount, while keeping the upfront payment as low as possible. The home loan insurance plan covers the risk of the financing institution, it may be willing to lend more than 80% of the value of the property.

While opting for home loan insurance policies, consumers have the option of choosing between one-time payment and installments.

The premium you pay for home loan insurance will vary depending on the borrower’s age, health condition and the tenure and value of the loan.

See also: Why you should buy life insurance to cover your home loan 

What does home loan insurance policy have to offer?

Keep in mind that the cover under a home loan insurance plan reduces as you repay your loan. If you have already paid Rs 10 lakh from a home loan of Rs 50 lakh, then, the protection plan will pay only Rs 40 lakh to the bank in case of an accident.

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Note

    • Understand your requirements: These are generally third-party products and banks package them in their home loan plans. They also sell them frequently, as they make a profit on its sale. That’s why it’s important to see if you really need this plan.
    • Repaying Home Loan: If you are planning to give the loan for a short tenure, buying a home loan protection plan would be a bad idea, as the protection would soon become null and void. However, buying a home loan cover is a must if you are taking the loan for a long time.

 

Tax Benefits on Home Loan Insurance

Tax deduction can be claimed under section 80C of the Income Tax Act for paying home loan insurance premium. However, the deduction cannot be claimed, if you have borrowed money from your bank to pay premium.

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