One of the common reasons to buy term insurance is to be able to cover outstanding loans. In the event of the policyholder’s absence during the term of the policy, the sum assured can be used to pay off loans so that the financial burden does not fall on the family members or beneficiaries.
Purchasing a house involves taking out a substantial loan, and for many, it is the most significant financial commitment they will likely undertake in their life. In such cases, having a term insurance plan becomes not just a prudent choice but a crucial one. Term life insurance offers a financial safety net for your loved ones, so they are not weighed down by the responsibility of repaying the home loan in your absence.
Find out why a term insurance plan is essential for protecting your home.
Benefits of term insurance for homeowners
Covers the amount of the home loan
In the absence of the home loan applicant, the responsibility to settle the loan is shifted to the next of kin. If the heir of the deceased is unable to settle the loan, the loan provider can seize the house or other collateral to recover the value of the loan.
Term insurance offers high sum assured amounts that can be used by the surviving members of the family to repay the home loan amount.
Protects the house
A house is more than a piece of property and holds immense emotional value for most people. Not only does the term insurance payout provide for the financial needs of the family, but it also ensures that the house you so diligently saved and invested in is protected.
Term insurance protects your asset and allows your family members to retain the cherished asset you have worked hard to acquire.
Provides peace of mind
Outstanding loans can be a source of constant stress. Given the high value and long repayment terms of home loans, you may worry from time to time about the burden they can create for your loved ones in your absence.
With its guaranteed and pre-fixed sum, term insurance can offer you peace of mind and eliminate your financial stress.
Secures you and your loved ones in adverse situations through riders
Term life insurance offers additional riders that can be added to the plan on top of the basic life coverage. These riders provide enhanced financial protection in the case of several unprecedented situations.
For example, riders like the permanent disability rider waive off all future premium payments in the event of being diagnosed with a permanent disability. This ensures that your term plan continues and provides you with some financial respite in an already trying situation.
Riders can be added to a term insurance plan at an additional cost. To make an informed decision, it is advised to use a term insurance calculator to determine the total cost of the plan.
Offers tax benefits
Premiums paid for both the basic coverage and additional riders in term insurance qualify for tax deduction under Section 80C of The Income Tax Act, 1961. This means you can lower your taxable income by claiming a deduction of up to ₹ 1.5 lakh per annum.
You can considerably reduce your tax liability if you combine this tax benefit with the advantages of tax deductions available on a home loan. The saved money can then be redirected towards repaying your loan faster and meeting other financial needs.
How can homeowners select the right coverage for optimum financial protection?
Below are some tips that can help you select suitable coverage for your term insurance plan:
Select a cover that adequately covers the cost of the home loan
When determining the coverage amount for term insurance, it is essential to consider the cost of the home loan comprehensively. You must keep in mind the rate of interest for the home loan, whether fixed or floating and ascertain a suitable value that can cover the loan.
Additionally, it is imperative to assess your family members’ other financial needs beyond the loan repayment. The insurance cover should not only be sufficient to settle the debt but also provide for other financial goals and obligations of your loved ones.
Align your policy term with your home loan repayment period
The tenure of your term insurance plan should be at least as long as the home loan repayment period. This ensures peace of mind and provides your family with a financial safety net to rely on in their hour of need.
Opt for additional riders
Term life insurance offers a variety of riders designed to address specific needs, and homeowners can find particular value in the permanent disability rider. In the event of being diagnosed with a permanent disability, this rider waives off all future premium payments and ensures that your policy remains active.
For homeowners, the permanent disability rider can provide crucial support by keeping the insurance plan in force even if you lose your income due to a health condition. This ensures that your family continues to have financial protection during a challenging time, and you can pay attention to your recovery without worrying about the financial implications.
To sum it up
Term insurance not only safeguards your loved ones’ financial future but also protects your hard-earned assets, such as your home.
While you are focused on moving forward and acquiring assets, such as a house, it is essential to consider the potential impact of unforeseen incidents and adequately prepare for them. Term insurance can provide a safety net, ensuring that your family maintains financial stability even in the worst of times.
