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Some of the biggest assets most people dream of possessing are sometimes not easily affordable. Everyone hopes to own a fancy car or a house of his/her own, but with rising expenses or soaring property rates, almost everyone ends up taking a loan in order to purchase their dream.
So, now having acquired it, spare a thought on what would happen if you are unable to complete the payment of the loan amount due to some untoward incident? In such a case, a mortgage insurance plan, or a decreasing cover term plan are ideal tools to cover the loan liability that you may have.
Why A Loan Insurance Plan?
You've taken a loan to purchase your dream home car or home appliances and are repaying the same though EMIs with your hard earned money. But did you know, that if you were unable to pay off the full amount towards the loan repayment, not only would your family have to bear the burden of the outstanding loan, but they would also end up losing the prized possession to the bank, despite having partially paid off the loan. This is why a plan which offers good insurance cover for your loan liability is essential for you. A loan insurance product or decreasing term cover gives you the assurance that the asset will always be yours, irrespective of any situation that may arise.
In fact, even in the case of any other smaller loans that you may have taken such as an auto loan, personal loan or credit card liabilities, the burden can fall on your family in case of an untoward incident that incapacitates you to pay the EMIs regularly.
How To Secure Your Loans ?
There is some rigidity that a conventional mortgage plan poses on various aspects. But a decreasing term cover plan can help you overcome these. Let's take a look how: Loan schedules: To cover your loan with a mortgage assurance plan, you need to submit a loan schedule provided by the bank to the insurer. This loan schedule decides the period over which the loan must be paid off at regular intervals. If during the course of loan repayment the rate of interest increases, the insurance cover continues as per the original loan schedule submitted. This means that the cover may not be adequate to meet the outstanding loan amount which may have increased due to changes in interest rate.
If you choose to secure your loan through a decreasing cover term plan, there are some options available wherein one can cover their loans which do not require a loan schedule for the cover to kick in. Such plans allow you to select your rate of interest from a range on the basis of which the sum assured is decided. This is helpful to cover multiple loans, in addition to the home loan under a single plan by taking a cumulative rate of interest and sum assured. Also, in the situation when interest rates change, you can always top-up the new outstanding loan amount with an additional sum assured.
Cover for small loans
Mortgage insurance is usually available as a bundled product along with the loan which covers only the loan taken from the bank. Such products are limited in their features as they are available only if you have taken a home loan and they do not fulfill any other financial objective. A decreasing cover term plan can be used to cover various kinds of loans such as personal or consumer loans, in addition to high-value loans. Further, these plans can also help to build a corpus for your child's education, marriage or retirement.
Flexibility
Since most mortgage insurance plans work according to the predecided loan schedule from the bank, they offer very little flexibility. On the other hand, a decreasing cover term plan would give you the option to select your policy term, premium payment frequency, and rate of interest. Some products also give you the option to pay premiums in advance which entitles the policyholder to favorable discounts. Some life insurers offer decreasing term cover plans on a limited premium payment mode, wherein the premium needs to be paid only up to two-thirds of the entire policy term.
You cannot forget that your family is your responsibility, and it is for you to make sure that they are well taken care of, in your presence as well as in your absence. You should ensure that they are left with good financial backing rather than the burden of your loans.
Opting for a decreasing term cover plan with various flexibilities would give you better coverage than a conventional mortgage plan. Therefore, safeguarding your loan liabilities can be one of the best decisions you could make for both, yourself as well as your family.
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- SBI Magnum Tax Gain Scheme 1993
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