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How Term Insurance Plans Cover Home Loan Risks?

lokesh kumar

For most Indians, buying a home is a long-cherished dream. For some, it is an important milestone in life. And, to make the dream come true, most individuals avail of a home loan. While getting a loan is a great way to get the desired funds for your dream home, it is a long-term financial commitment. You must repay the home loan consistently on time throughout the loan tenure. 

Now, imagine a situation where you cannot repay the home loan EMIs (equated monthly instalments) either due to your untimely demise or loss of earning capacity due to critical illness or disability due to an accident. In either case, if you cannot pay the EMI, the repayment burden will automatically fall on your family members. 

To avoid facing such an unfortunate situation, it is imperative that you purchase a robust term insurance policy with a high sum assured to cover home loan risks. Let us look at the various home loan risks and how you can cover the same with term insurance plans

One of the biggest risks of taking a home loan is not being able to repay the amount due to untimely demise. A term insurance policy can come to your family’s rescue in such a situation. Your family can use the sum assured from the policy to pay off the debt at once and close the loan account or continue repaying the EMI. Depending on the sum assured you choose, your family can use the remaining amount to meet their regular expenses. 

Apart from giving your family a financial cushion in your absence, term insurance is highly cost-efficient. You can easily purchase a policy with a high sum assured of ₹1 crore or more at an affordable premium. This means you need not even burn a deep hole in your pocket to pay the premium. 

Another significant home loan risk is the non-payment of EMIs due to critical illness or accident, rendering you incapable of earning an income. In this situation, too, a term insurance policy can be your saviour. Today, all insurance companies offer a variety of riders or add-ons for term insurance buyers. 

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If your family has a history of critical illness like cancer, the chances are high that you may be diagnosed with the disease. Considering how expensive the cancer treatment can be, you may find it challenging to manage the expenses while repaying the home loan. To avoid such a situation, you should buy a critical illness rider along with your term plan. 

With this rider, the insurance company will pay the sum assured immediately upon the diagnosis of the disease. Your family can use the amount to manage the treatment and/or pay the home loan EMIs. Unlike health insurance, there is no restriction on how you want to use the amount. Although buying a rider would slightly increase the premium, it would be worth it.

Thus, a term insurance policy can help you mitigate the home loan risk even during an illness or accident. 

Final Word

With so many benefits of term insurance, you should purchase a policy earlier to protect your family’s financial future against home loan risks and other debts. Make sure that you compare different plans and choose the one that best suits your needs and budget. 

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