Mr Iyer has been an ideal family man. His immaculate planning and financial prudence ensured that his family does not have to worry about a roof over their head even after his passing. They will miss him for sure, but he has ensured that his term insurance cover takes care of the balance on the home loan on which has eight more years of mortgage repayment left.
As a result, his daughter can focus on her studies abroad, and Mrs Iyer can tend to her plants as she enjoys retirement in the home they built together.
Mr Iyer had planned for a practical eventuality. Life is unpredictable. While nothing can fill the emotional void, your absence can also have long-term financial repercussions for your loved ones. Especially if you have a debt or home mortgage to pay, your family could end up struggling to make ends meet, or worse, lose the roof over their head.
Buying a house is probably one of the biggest purchases you will ever make. If you factor in escalating real estate prices, stamp duty, taxes, and renovation costs, making a house a home can really involve a lifetime of sacrifices for the common person.
To ensure that you and your family can enjoy the fruits of your labour, it is important to invest in an insurance plan if you have bought (or intended to buy) a house. Most banks and housing finance companies will, in fact, insist that you purchase a Home Loan Protection Plan (HLPP) to safeguard everyone’s interest.
How HLPP works?
What an HLPP does is that in case of any mishap, accident, sickness, or untimely death, the insurer repays the balance on the loan, while paying the excess amount to the beneficiary. This effectively reduces the financial burden on the family and ensures that the bank receives their dues.
An HLPP is just like a term insurance plan. The risk cover, however, works on a reducing balance principle commensurate with the outstanding on the home loan amount. Over the years, as the outstanding reduces with the EMIs, the risk cover also decreases.
The premium on an HLPP is paid in a single instalment at the time of sanctioning the home loan. You can either pay this out of your pocket or add it to the overall home loan EMI. The premium on the HLPP is calculated on the basis of four major factors – your age, your health, loan amount, and loan tenure.
In case there are joint applicants for the home loan, the HLPP can cover both co-applicants. Even if one applicant suffers from any mishap or death, the insurance will provide the assured benefits.
There are three types of HLPP available:
- Reducing cover: Under this plan, the life cover reduces with the loan’s outstanding amount.
- Fixed cover: Under this plan, life cover remains the same for the entire tenure.
- Hybrid option: This offers fixed cover for a set number of years followed by reducing cover for the remaining period.
You can opt for riders with your HLPP for comprehensive protection. These include the critical illness rider, disability or loss of job rider etc.
You can also avail of tax deductions on the premium paid for your HLPP under Section 80C, as long as the insurance premium (on HLPP) is not clubbed with your EMI.
Having an adequate life cover should be a priority if you have dependents, regardless of your intention of buying a home. One can never be over-insured!