Term Insurance and Home Loans – What’s the Connection?

Planning to buy a house or have already bought one? Did you buy a term plan? Well buying a house is not at all easy and we buy a house so that we live as a family. Its dream come true for anyone to settle in a house of theirs with the family and at no cost would want the family to be out of the house. When you buy a house it’s always through a loan. Have you ever considered what happens in case of an eventuality? Are your family members capable of paying the premiums by themselves or its ok with you that the loan lending financial institution takes control of your house and drives your family out of it? I guess no one would want to see such a day. This is exactly where term insurance comes handy when you have a house loan. This is because the Sum assured is used to settle the home loan after your death so that your family lives in the same dream house without any financial burden.

How a term plan covers a home loan
Let us take a quick look at some of the ways in which a term plan can be beneficial for a person who has a home loan.
No financial burden on family: The settlement amount of the term plan will be used to pay off the home loan after your death. You should therefore buy a plan that is large enough to cover the entire loan amount. Without such a term insurance cover in place, it will be very difficult for your family to pay off the loan in your absence. It will put them under very severe financial burden and make life very difficult for them. You surely don’t want that, so buy a term plan and be rest assured.
No chance of eviction: You bought the house so that your parents, your partner and your kids always have a roof above their heads. Won’t you be horrified at the thought of your family being evicted from the house and that too when you won’t be around to help them? To prevent such a thing from happening, cover your home loan with a term plan. If you die before repaying the loan, the sum assured from the term plan will take care of the repayment after your demise. There will be no lapses in the EMI and your family will never be forced to evict from the house.
Highly affordable: A big reason why you should buy a term plan to cover your home loan is that the term plans are quite inexpensive. This makes buying term insurance very affordable. You can easily afford the plan and continue to protect your family members from any unwarranted financial strain later on.
Fixed benefits: The sum assured in a term insurance plan is fixed. So even if a claim is made when the home loan repayment balance is low, your nominees will get the full payout. They can use the required amount to clear the loan and the remaining amount in any way they wish to. This gives you and your family members a dual advantage. Finances are not easy to manage and if there is an extra supply, it is always useful.
Critical illness rider: You can buy a term insurance plan with a critical illness rider. If you have a family history of cancer or any other life-threatening illness, you can benefit from buying this rider. Once diagnosed, you will get a separate lump sum amount which you can use in any way you wish to. You can use it to clear the home loan or you can use it as an income replacement that would take care of the home loan EMIs too. A critical illness rider along with the term plan can indeed help your cause significantly.
Ease in changing lenders: In case you wish to change your home loan lender, you may do so easily if you have a term insurance back-up. Besides, post completion of your home loan, the term insurance plan will continue offering life cover to you and your family members by paying your premia regularly. However, if you wish to opt out, you may do so.
In a nutshell
To put it in a nutshell, it is vital to buy a good term insurance cover if you have a home loan. As we saw from the points mentioned above, there are many advantages of doing this. Most importantly, the term plan protects your family members and allows them to live comfortably in their own home after your death. As a concerned person, this is all you want for them. So buy a term plan and cover your home loan, if you haven’t done so already.

Neville Fernandes (LIC Advisor)