How home loan protection plan works?
The exclusive plan is offered by both life insurers and general insurance companies. Insurance against the loan can be purchased by either making a single premium payment or as multiple premiums distributed over the term of the loan. Sum assured for the plan is generally same as the home loan amount.
In case of unavailability of funds with the borrowers, many a times banks may insist you to club the home loan amount as well as insurance premium against it.
An important feature of the plan is that premium for the plan is calculated every year on the basis of outstanding loan amount. So, with decrease in outstanding loan amount premium for the plan also goes down.
Policy Benefit: The policy provides a lump-sum benefit in case of death of the insured and the sum is to be used for making payment towards the outstanding home loan amount. However, at a higher premium, few of the insurance companies allow claim to be made in case of critical illness or permanent disability of the insured.
However, term plan is considered to be a better option in its comparison. And as suggested by experts, individuals wanting to take a cover against their home loan liability instead of going for the exclusive home loan protection cover floated for the purpose can buy a single premium online term plan. Single premium for the term plan is suggested because a policy with annual renewal would cost higher than the home loan protection plan as sum assured goes higher.