A Home Loan Protection Plan is a type of insurance that helps pay off your home loan if something unfortunate happens to you, such as death, disability, or job loss during the loan term. This ensures that your family does not have to worry about repaying the loan in such situations. The plan also benefits banks and other lenders, as it protects them from the risk of unpaid loans.
Typically, the policy period matches the loan tenure. So, if your loan is for 20 years, your insurance will also last for 20 years. Some home loan protection plans can be combined with life insurance, offering even broader financial protection to your family.
In this blog, we will guide you through the main features, purpose, benefits, types, and frequently asked questions about home loan protection plans, so you can make an informed decision when buying one.
What is home loan insurance?
Home loan insurance is designed to settle your outstanding loan amount in case of your untimely death, disability, or sudden job loss. This plan protects your family from having to repay the remaining loan amount and also ensures that your bank gets its money back.
The insurer will take responsibility for the remaining balance of your loan, helping reduce the burden on your loved ones. This kind of protection gives peace of mind to both borrowers and lenders, especially during financially difficult times.
The insurance cover lasts for the same duration as your home loan. So, if your home loan runs for 25 years, the insurance will also cover that same period.
Understanding purpose and coverage duration in home loan protection
Before deciding on home loan protection, it is helpful to know what the insurance actually does, why it is needed, and how long it lasts. This section breaks down the key purpose of such insurance and how long the cover typically stays active. Understanding these basics can help you decide whether this type of financial protection is a good fit for your family and financial responsibilities during your home loan journey.
Purpose of home loan protection plan
The main goal of home loan insurance is to make sure that your family is not left with the burden of repaying the home loan in case something unfortunate happens to you. It also offers security to the lender, ensuring that they recover the loan amount even if the borrower passes away, becomes disabled, or is no longer able to earn. In such events, the insurance provider steps in to pay the remaining loan balance, so your loved ones are protected from financial distress or potential loss of the home.
Coverage period
Home loan insurance stays active for as long as your home loan is active. For example, if your home loan tenure is 30 years, then your insurance cover will also last for the same duration. The cover is linked to your repayment schedule and ensures that the outstanding loan amount is always protected. Once the loan is fully repaid, the insurance policy also ends. It is a useful safety net that mirrors the timeline of your financial obligation.
Importance of home loan protection
There are several reasons why having a home loan insurance policy can be beneficial, especially when you want to protect your family and your property against future financial uncertainties.
Protects family
With home loan insurance in place, if the borrower passes away unexpectedly, the insurance company takes on the responsibility of paying the unpaid loan balance. This provides a great sense of financial relief to the borrower's family, as they are not left to handle EMIs during a difficult emotional time. It ensures that the family can continue to live in the house without the fear of losing it due to non-payment of dues. The insurance serves as a financial cushion that supports your loved ones in case of a sudden loss.
When planning for such protection, it's equally important to secure the right home loan with competitive rates and flexible terms. Bajaj Finserv offers home loans with attractive interest rates starting from 7.49%* p.a and tenures up to 32 years. Check your eligibility today. You may already be eligible, find out by entering your mobile number and OTP.
Safeguards lenders
When a borrower dies during the loan tenure and has not opted for insurance, the bank or financial institution bears the risk of loan default. Home loan insurance protects the lender by ensuring that the outstanding loan amount will still be paid. The insurer steps in to clear the dues, which helps maintain trust between borrowers and financial institutions. This coverage safeguards both parties — giving lenders confidence and borrowers peace of mind knowing their liability wo not become a burden on their family.
Prevents financial strain
If you are the only earning member in your family and have a home loan, an unexpected incident such as death or disability can place your family in financial trouble. They may not be able to continue repaying the EMIs and could risk losing their home. Home loan insurance helps avoid such a situation by paying off the loan in such cases. It allows your family to retain the property and avoid stress at a time when they may already be facing emotional difficulties.
Characteristics of home loan insurance
Home loan protection plans come with several useful features and options that offer flexibility and peace of mind for both the borrower and the lender.
Premium payment options
When it comes to premium payments, home loan insurance plans offer flexibility. Borrowers can choose to make a one-time payment at the start or opt for monthly instalments added to their EMIs. The latter can be a practical option if you are not able to afford a lump sum upfront. These options help tailor the policy to suit your financial comfort. Regardless of the payment method you select, the aim remains the same — ensuring your home loan is protected without stretching your budget too far.
Lump sum payment
Under this option, you can pay the entire insurance premium in one go at the beginning of the policy. This one-time payment approach is straightforward and helps avoid any monthly payment obligations later. It is suitable for borrowers who can manage a slightly larger upfront expense for the benefit of long-term security. Once paid, the policy remains active for the entire loan term without any further contribution required from the borrower.
EMI integration
This option allows you to include the insurance premium within your home loan and repay it in parts alongside your regular EMIs. It is ideal for borrowers who may not want to spend a large amount in one go. The total loan amount increases slightly, but it spreads out the cost over the loan period. This integrated option helps you stay covered without affecting your short-term finances. The convenience of combining premiums with EMIs makes this a popular choice among borrowers.
Joint house loan borrowers
If you’ve taken a home loan along with another person — like your spouse, parent, or child — you can choose a joint home loan insurance plan. This policy ensures that if one of the borrowers passes away during the loan term, the insurer will cover their share of the outstanding loan. The remaining borrower is then responsible only for their own portion of the loan. It is a useful solution that ensures shared responsibility does not turn into a solo burden in difficult times.
Riders and add-ons
Besides basic home loan cover, many insurance providers offer riders and add-on features for additional peace of mind. These may include critical illness cover, permanent disability cover, and even a temporary loss of income rider, which takes care of a few months’ EMIs if you lose your job. These add-ons help you customise your insurance based on your lifestyle and future risks. It adds more value to your plan and makes the protection more comprehensive.
Basic coverage
The core offering of home loan insurance is to repay the remaining home loan amount if the borrower passes away during the loan term. This relieves the family of any financial pressure linked to loan repayments and allows them to keep the home. It is a direct and practical form of financial protection that ensures your investment in the property does not go to waste due to unforeseen circumstances.
Additional riders
When taking a home loan protection plan, you can also consider adding extra cover for better security. These add-ons, also called riders, may include protection against critical illness, total or partial disability, and even accidental death. Some policies offer an income protection rider, which helps you pay up to 6 months of your EMIs in case you lose your job unexpectedly. These added features increase your overall coverage and provide peace of mind to you and your family during difficult times. It is always a good idea to check which riders are available with your plan and choose the ones that suit your needs.
Full bleed banner Component |
|||
Background image 1 |
Mandatory |
NA |
/Images/Home-Loan/Loan-Utsav-Offer-Low-Interest-Big-Savings.png |
Background Image Alt Text |
Mandatory |
10 Char |
Home Loan |
Banner URL |
Mandatory |
NA |
/home-loan |
Section wrapper Required |
Mandatory |
NA |
yes |
Sequence order |
Mandatory |
10 Char |
1 |
Full bleed banner Component |
|||
Background image 2 |
Mandatory |
NA |
/Images/Home-Loan/Low-Interest-Easy-EMIs-Quick-Approval.png |
Background Image Alt Text |
Mandatory |
10 Char |
Home Loan |
Banner URL |
Mandatory |
NA |
/home-loan |
Section wrapper Required |
Mandatory |
NA |
yes |
Sequence order |
Mandatory |
10 Char |
2 |
Best type of home loan insurance policy in india
Different types of home loan insurance policies are available, and each has its own benefit. Choose one that matches your loan type and repayment capacity.
Hybrid home loan insurance plans
This type of insurance keeps the coverage amount constant for the first year. From the second year onwards, the coverage amount adjusts based on the outstanding loan balance. As your EMIs reduce the loan liability over time, the insurance cover also reduces accordingly. It offers a balance between full protection initially and reduced premium costs over time. This dynamic plan can be a smart choice for those who want a flexible and cost-effective way to stay covered throughout the loan tenure.
Level cover plan
In a level cover plan, the insurance coverage amount remains fixed throughout the entire home loan term. Whether you are in the first or final year of your repayment, the insurer will cover the same sum. This plan is ideal for borrowers who want constant and predictable protection for the full loan amount. It also suits those who prefer not to worry about adjusting cover based on reducing loan balances.
Reducing property insurance for home loans
In this plan, your insurance cover decreases in line with your home loan balance. As you keep paying off EMIs, the insurance amount reduces accordingly. Since the insurer only needs to cover the outstanding loan amount, this plan usually comes with lower premiums than fixed cover options. It is a cost-effective way to protect your home loan without overpaying for coverage you no longer need.
Just as you want cost-effective insurance, securing a home loan with competitive rates is equally crucial for your financial planning. Bajaj Finserv provides home loans up to Rs. 15 Crore* with no foreclosure charges for individual borrowers on floating rates. Check your eligibility for competitive home loan rates from Bajaj Finserv. You may already be eligible, find out by entering your mobile number and OTP.
Structure of Home Loan Protection Plan
The structure of a Home Loan Protection Plan (HLPP) is designed to provide financial security to individuals who have availed themselves of a home loan. Here are the key components and features that define the structure of an HLPP:
- Policy type: HLPPs are typically structured as term insurance plans, specifically a decreasing term insurance. This means that the sum assured decreases over the policy term, aligning with the reducing outstanding balance of the home loan.
- Sum assured: The sum assured in an HLPP represents the maximum amount that will be paid out in the event of the policyholder's demise or total permanent disability during the policy term. This sum decreases over time, mirroring the outstanding loan amount.
- Premium payments: Policyholders are required to pay regular premiums to keep the HLPP active. Premiums can be paid monthly, quarterly, semi-annually, or annually, depending on the policy terms and the preferences of the policyholder.
- Policy terms: The policy term of an HLPP typically corresponds with the tenure of the home loan. It ensures that the insurance coverage aligns with the duration of the outstanding loan, providing protection throughout the repayment period.
- Coverage trigger: The primary trigger for the pay-out in an HLPP is the demise or total permanent disability of the policyholder during the policy term. In the case of the policyholder's death, the sum assured is paid out to the nominee, providing financial coverage for the outstanding home loan.
- Additional benefits: Some HLPPs may offer additional benefits such as waiver of premium on total permanent disability, accidental death benefits, and critical illness cover. These additional benefits enhance the overall coverage of the plan.
- Maturity benefits: HLPPs, being term insurance plans, do not typically offer a maturity benefit if the policyholder survives the entire policy term. The primary purpose is to provide financial protection to the family in case of unfortunate events.
- Nomination and assignment: Policyholders have the option to nominate a beneficiary to receive the sum assured in the event of their demise. Additionally, they can assign the policy to the lending institution, providing an extra layer of security for the home loan.
- Flexibility in premium payment terms: Some HLPPs may offer flexibility in choosing the premium payment term. Policyholders can decide whether to pay premiums for the entire policy term or for a limited duration, making it more customisable based on individual financial preferences.
Different ways to insure your home loan
- Term insurance:
Many borrowers opt for a standalone term insurance policy to cover their home loan. In the event of the policyholder's demise during the loan tenure, the sum assured is paid to the nominee, ensuring the repayment of the outstanding loan amount. - Group insurance offered by lenders:
Lenders often provide group insurance plans to borrowers as a part of the home loan package. While convenient, borrowers should carefully assess the coverage and compare it with standalone policies to ensure comprehensive protection. - Mortgage Reducing Term Assurance (MRTA):
MRTA is specifically tailored for home loan protection. Similar to HLPP, it ensures that the outstanding loan is repaid if the borrower faces unforeseen circumstances, offering a specialised solution for mortgage-related risks.
What else does home loan insurance cover
Apart from the primary coverage for the outstanding home loan amount, Home Loan Insurance may offer additional benefits:
- Disability cover: In the case of total and permanent disability, the insurance may cover the outstanding loan or provide a waiver of future premiums.
- Critical illness cover: Some plans extend coverage to critical illnesses, offering financial protection in the face of major health challenges.
- Accidental death benefit: In the event of accidental death, an additional sum assured may be provided to the nominee, offering enhanced financial support.
Benefits of Home Loan Protection Plan
- Financial security for the family: In the unfortunate event of the borrower's demise or disability, the HLPP ensures that the family is not burdened with the home loan liability, providing financial security.
- Loan continuation for nominee: The insurance ensures that the nominee can continue residing in the home without the fear of losing the property due to the outstanding loan.
- Flexible options: HLPPs often come with flexible premium payment options, allowing borrowers to choose a plan that aligns with their financial capabilities.
Difference between home loan insurance and home loan
Basis of comparison |
Home loan insurance |
Home insurance |
What it covers |
Pays the unpaid home loan amount if the borrower dies during the loan tenure |
Covers damage to the structure or contents of the house due to natural disasters, fire, or theft |
Scope of cover |
Covers the remaining loan amount |
Covers the property and belongings inside the home |
Impact on down payment |
May reduce EMI burden by integrating premiums with loan |
Does not affect loan or EMI |
Who can buy it |
Only those who have a home loan |
Anyone, regardless of whether they have a loan |
Conclusion
A home loan protection plan is a crucial component of responsible financial planning for those undertaking a home loan from Bajaj Finserv. By understanding its structure, coverage options, and additional benefits, borrowers can make informed decisions to safeguard their homes and the financial well-being of their loved ones.
Check your eligibility for a home loan from Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.
Helpful links for understanding home loan process
Apply for a home loan in different cities
Home loan options for different budgets
