BUYING a house is the high point in the life of an average Indian. However, seldom he or she realises that the most-coveted asset comes at a huge price and is a very large long-term liability in the account book.
If something happens to the borrower, especially if on the death of the breadwinner of the family, the dependents are left shouldering the burden of debt, in addition to grappling with the loss of the breadwinner's income. A failure to repay the loan could mean having to deal with the threat of the bank repossessing the property, resulting in possible eviction — an eventuality one certainly wants to avoid.
Enter loan insurance covers, which are specifically designed to cover such risks. Home loan insurance, or mortgage covers, are similar to simple term plans, but unlike the latter, these policies offer a reducing sum assured; that is, the cover diminishes in congruence with the amount owed to the lending institution.
Generally, these are single premium policies with the lender funding the amount, which is to be repaid by the borrower as part of the equated monthly instalments (EMI).
However, you need to bear in mind that while covering your liabilities is extremely critical, mortgage cover is by no means the only way of achieving this end. You can always look at a simple term plan with sum assured large enough to cover your liabilities and replace your income. Term insurance rates have been falling; also, the cover remains constant, unlike home loan insurance where the sum assured goes down along with the amount repayable. But in absolute terms, a home loan cover will be cheaper than term insurance.
Therefore, you need to take a call on the basis of your needs – if you already have say a Ulip or an endowment plan in place before taking the loan, you can choose to go with a mortgage cover; else, a term cover should do the job.
