What is mortgage insurance?
The word insurance is familiar to everyone but if you want to know what is mortgage insurance, what is mortgage home insurance then this article is just for you. In this article, we will learn what is mortgage insurance? When a person takes a loan, the mortgage process begins, but everyone wanted to know what is mortgage insurance.
In the life of a common man, owning a house is a big responsibility. Some people are saving money for a house by putting aside their income. Some people fulfill their dream by taking a home loan. But there is no hope in a man’s life. Nowadays, no one can predict when an accident will happen and if the earner of the house dies, the loan taken for the house has to be repaid to his inheritance. In this case, if the mortgage is insured, then it makes sense.
What is mortgage insurance-
When you take a home loan from the bank, but if you can’t repay the money or loan to the bank, then the bank confiscates the property. But mortgage insurance is taken out so that such time does not come on the account holder.
Mortgage insurance is an insurance policy. If a person dies and he did not repay the loan amount, the entire loan amount is written off by the mortgage insurance policy.
How to ensure a home loan
A normal middle-class family takes a home loan of 20 to 40 lakhs and its monthly installment comes to 20 to 50 thousand rupees depending on the period of the loan. A home loan protection scheme is like term insurance, i.e. you can decide the term of insurance yourself. Your premium is fixed according to the term of insurance.
Mortgage Insurance Advantages
- If the borrower dies then the rest of the installment is deposited through this insurance and your house is safe.
- Having insurance cover does not impose this burden on others. Sometimes banks also merge the premium amount of insurance into EMI, yet it does not increase the EMI much.
- Provides home loan insurance cover in case of accidental death or permanent disability of the borrower.
- Home Loan Protection Scheme is like term insurance, i.e. you can decide the term of insurance yourself. Your premium is fixed according to the term of insurance.
- Insurance cover is also available in case of serious illness of the borrower. If for some reason the person taking the bus loses his job, then the insurance company pays three monthly installments.
Is it mandatory to take it?
Whether it is the Reserve Bank of India or the insurance regulator IRDA, no one has made it a rule that it is necessary to take insurance with a home loan. However, many banks or finance providers have started telling the amount of such insurance to the customers only by adding it to the loan. Regardless of this the decision to buy an insurance plan with a loan or not is entirely up to the customer. The borrower cannot be forced to buy cover.
Difference between home insurance and home loan insurance?
It is very important to understand the difference between home insurance and home loan insurance. Home insurance covers the loss due to theft of the house and its contents, natural calamities, etc. On the other hand, if for some reason something happens to the person who has just taken a home loan, then home loan insurance helps to repay the EMI. However, the rules of an insurance policy should be read carefully before taking out insurance on a home loan.
Where can I get loan insurance?
The bank or non-banking financial company (NEFC) from which you take a loan also provides you home loan insurance. In addition, if you do not want to take insurance from there, you can also take home loan insurance from insurance companies.
How much is the premium to be paid?
The insurance premium is 2 to 3 percent of the total loan amount. Insurance companies decide the insurance premium by looking at the loan amount, the term of the loan, the age of the borrower, and the income.
How much will the EMI increase if you take insurance from the bank along with the loan?
Such insurance policies usually have a single premium option instead of the regular annual payment. Suppose your banker approves a home loan of Rs. 22 lakhs for you and provides home loan cover at a single premium of Rs. 90,000 for twenty years, then your total loan becomes Rs. 22.90 lakhs. Assuming an interest rate of 10 percent per annum, your EMI would be Rs 20,169.
On the other hand, if you had not taken insurance cover, your loan would have been just Rs 22 lakh and EMI would have been Rs 19,300 for 20 years. That way your EMI will go down by Rs 869 every month for twenty years. This means that if you take home loan insurance, you have to pay an additional Rs 208,560 over the entire term of the loan, whereas the bank has paid only Rs 90,000 for it. He is also earning interest on this amount.
Which is better, single OR annual premium?
A single premium paid policy has two advantages and one disadvantage. The first advantage is that you do not have to worry about the renewal date as there is no renewal. Another advantage is that such products are cheaper as the commission is limited to 2 percent, the insurance company gets a better return on investment and the service charges are lower.
The disadvantage of a single premium policy is that the lump sum that has to be paid upfront is quite large. Suppose a 40-year-old person takes out a 30-year insurance policy for a sum assured of Rs one crore. The single premium will be Rs 3.3 lakh and the annual regular premium will be Rs 23,000.
Most people prefer to pay a premium of Rs 23,000 per annum, even if they have to pay Rs 6.9 lakh in 30 years. Because paying a premium annually is right according to the pocket and people have the option to turn it off when they don’t need it in the future.
When will you not get the benefit of insurance?
If the home loan shifts to someone else’s name or closes prematurely, the insurance cover ends. Cases of natural death or suicide are also not covered under the Home Loan Protection Plan. However, if you transfer, pre-pay or restructure the loan to another bank, there is no effect on home loan insurance.