In a world where the cost of living keeps increasing due to various factors, the way one manages their lifestyle also gets impacted. This impact is mainly felt in the finances of the household. Investing in a good-term insurance plan is advised to avoid relying on savings to protect your loved ones. There are plenty of term insurance plans that you can find in the market.
In life, different needs can arise at different stages. The major one is a house of your own. As property rates are always high, most people get a home loan to purchase their dream house. Complications could arise, however, if the borrower passes away. In such a situation, you can take home loan insurance. However, which is the better option: Term or home loan insurance? Read more to get a better understanding.
What is term insurance?
Term insurance is a type of life insurance. When you invest in term insurance, it signals an understanding between you and your insurance company. In the event of your untimely demise, your insurer will pay a specific amount to your loved ones. This amount is based on the plan you selected. You will come across different term insurance plans when you are looking to invest in one. These plans are designed to match each customer’s other requirements and budgets.
What is home loan insurance?
When you apply for a home loan, there are various factors that you need to keep in mind. The interest involved in the installments and the repayment period is vital. However, in the event of your sudden demise, the task of repayment could fall onto your loved ones. This can create a financial burden if the loan amount is larger. In such situations, investing in a home loan insurance policy is suggested. This insurance policy helps your loved ones repay the loan without borrowing money from other sources.
Which is better?
Both these insurance policies serve different purposes. However, you can clear off your outstanding home loan with the help of your term insurance plan, meaning you do not invest in another policy. Listed below are the benefits that term insurance has over home loan insurance:
One of the major downsides of home loan insurance is the premium payment. As insurance is required to compensate a large amount of borrowed money, the premium for the policy is higher. Also, you must make a one-time payment as there is no option for monthly or quarterly payments in home loan insurance.
You have the option of making monthly or quarterly payments. This ensures you do not spend too much on premium payments. On the other hand, you can make lower premium payments for your term insurance. You can use the term insurance premium calculator to understand the required amount for your term plan.
2. Sum assured
As the name suggests, home loan insurance specifically covers your home loan. The sum assured that you get when you file a claim is used in clearing the loan. If the loan amount happens to be higher, there will be a lesser amount left to cover other expenses. Once the loan is removed, the sum assured usually becomes zero. This is not the case in term insurance. Only the amount required is deducted from the sum assured of your term insurance plan, meaning there will be a substantial amount left in the sum assured. This can be used for necessary expenses.
One benefit you can enjoy with your term insurance plan is customization. If you wish to increase the amount of the sum assured, you can do so. This can be done by increasing the premium you pay towards the plan. Use the term insurance premium calculator to see how much increase in the coverage you would get for a bonus. This benefit, however, is not present in home loan insurance. If you wish to increase the tenure of the insurance, there isn’t an option. You will have to pay the loan off before the insurance lapses.
If you are wondering about investing in home loan insurance to protect your loan, keep in mind the benefits mentioned above of a term plan. This will help you in making an informed decision.