Property is one of the most prized possessions for every individual, especially Indians where a house is just not a dwelling but something that one relates to as a living being. People giving names to their house are a testimony to this.
People desire to own a house and work hard towards achieving this objective. Unlike a generation earlier realization of this dream is far more in reach, given the ease of access to loans. However, one still needs to pitch in a large amount from savings to be able to actually achieve this objective. Owing to down payment, which is usually about 10% of the property value, and other associated costs like interior, registration charges, home loan interest rate being paid among others, buying a house becomes an expensive affair. Given the high cost of property and high exposure to debt, it becomes imperative to have cover against perils.
Let us look at the kind of covers and how these covers will help in protecting the prized possession during one’s life or even after it, in case of any unfortunate event.
Types of covers
First and foremost, be clear that there are two kinds of protections viz. Home Loan Protection and Property/Home Protection. The former extends cover against the outstanding amount of loan in case of an eventuality while the latter covers the property against perils like earthquake, flood, fire, storm etc. This cover also has the possibility of covering the goods and valuables at home against theft.
More about HLPPs
The home loan protection plans or HLPP as it is called has basically two variants.
- First is reducing cover option where the insurance cover also continues to reduce as the principal outstanding reduces. One point however to be noted is that it may not be exactly in proportion of the outstanding amount
- Second where the cover remains constant throughout the policy term. This is known as level cover protection plan
HLPP Premium Payment
The insurance premium paid on the level cover is always higher in comparison to the reducing cover option. This is on account of higher sum assured that is constant throughout the policy term. It is advisable to opt for the reducing cover.
Generally the HLPP policies have one time premium payment option. There may be a few insurance companies giving option of limited payment term of premium. The housing finance companies also extend the option to have this amount factored into the loan amount which makes it easy for the insurer to spread the cost over years. For example, if the premium on a 50 lakh loan is 1 lakh the total loan amount will get increased to 51 lakh for the borrower and EMI will be calculated on 51 lakh only.
Generally, these covers are not available in open market and are promoted by the housing finance companies only since it is in both the interest of borrower and the lender. One must check out from the bank or the housing finance company on availability of the cover.
Is HLPP mandatory?
Investing into HLPP is not mandated by RBI. It is purely at the discretion of the borrower to decide if he/she would want to have this cover or not.
Benefits of HLPP
The HLPP cover extends the following benefits:
- Peace of mind. In the unfortunate event of demise of the borrower the principal amount gets paid by the insurance company
- The payment is also eligible for tax benefit under section 80C
- One can always have additional covers like disability or critical illness rider
- The cover gets extended to all joint borrowers of loan
Is it worth investing in these covers?
It is always good to have these covers to guard against the possibility of natural destruction whether it is a calamity or death. In case unavailability of such cover, the joint owner may face challenges of repayment and end up landing with a poor credit score. This will lead to one opting for loan with bad CIBIL score. In an extreme situation he/she may even be forced to evacuate the property.
Therefore, it is advisable to invest into these covers.
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