Does term plan work better for home loan liability? Find out here

The biggest financial liability that an individual can take is a home loan. Failure to repay the home loan means that the lender could acquire the house, which had been mortgaged as collateral. In order to avoid such a situation, borrowers ensure that all their repayment are on time. However, in case of unforeseen circumstances that can hamper your repayment timeline, there are some choices available. One such option is life insurance cover to shield borrowers against the risk of their family losing their home. Two types of life insurance covers can be bought to safeguard against the risk of untimely death of the borrower. The first option one has is a traditional term plan. In case of death, the life insurer pays the amount assured to the family, which can be used for loan repayment. In the case of term cover option, there is no connection between the lender and the insurer. The borrower is required to procure the term policy on his/her own. He/she may need to go through medical tests and other underwriting requirements. The second option the borrower has is to purchase a home loan protection plan (HLPP) or mortgage reducing term insurance through the lender. In this case, the lender purchases a group policy to cover all its home loan customers. The plan’s assured amount lessens as the principal outstanding reduces (or as the loan is repaid). Indraneel Chatterjee, co-founder of RenewBuy, told Rediff that HLPP covers an individual’s outstanding home loan amount in case of accidental death, critical illness or disability. He further added that the house or the collateral from the family won’t be seized by the lender to recover the loan amount. He went on to say that it is the obligation of the mortgage insurance provider to pay the outstanding amount to the lender. It is easy to purchase HLPP. Usually, no mandatory medical test is required. The borrower just needs to sign a declaration of good health. Deepesh Raghaw, founder, Personal Finance Plan and a Securities and Exchange Board of India-registered investment advisor told Rediff, stated that HLPP is a quite expensive cover. He went on to say that banks sell this product because they get a heavy commission on it. A separate term-life policy works better in most cases. It is less complicated to do cost comparison of term insurance premiums from different insurers and purchase what suits your pocket. Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.