Buying your first home could be one of the most exciting experiences of your life. If you have a family and kids, you get to see the sparkle in their eyes, as they enter the new house and a sense of belonging.
There could be more reasons for that smile of contentment you had when you finally entered your new home. One of them being, the ‘home loan insurance’. The insurance which’ll repay your due amount of home loan, in case you are no more there to do so; i.e. letting your loved ones own the house, without having to bother with the liability.
However, is it enough? Will the ownership of the house without the burden of the home loan be sufficient for your family’s financial security?
Although this is better than no home loan protection, it is certainly not enough.
Where Could You be Wrong?
- Cost of Owning a House
- Risks to your income
Costs of Owning a House
Buying a house is not cheap, neither is the ownership of one. You may have already realised, that your struggle with the bills started after you bought the property.
Some examples could be looking like this in your monthly budget sheet:
|Bills||Amount (Rs. P.M.)||Description|
|Phone Bill||1000 to 1200||Probably the same as previous but your residential cluster may have a chargeable facility of the intercom.|
|Society Maintenance||1000 to 1500||A charge cluster housings and societies levy on their residents.|
|Security||500 to 1000||Another Charge from Gated Societies|
|Electricity||800 to 10,000||Charge May increase or decrease depending on your pre-ownership rates. Rises due to higher usage.|
|Kitchen||15000 to 35000||Also increases after house ownership, with more guests.|
|Clothing||10000 to 15000||Remains unaffected by the house ownership.|
|House Maintenance||2000 to 10000||Directly related to home ownership.|
|Gadgets and Appliances||4000 to 10000||More freely bought after ownership of the house, generally, increases.|
|Typical Increment in Monthly Expenses of Family||34,300 to 83,700||This is other than EMI & other common expenses before and after EMIs.|
Most of these expenses will remain, along with many others like children’s education fee, higher education goal, marriage goals, etc. even when you are not there to see them through. Some might be toned down a bit, but you would not want your family to go through a forced lifestyle change, would you?
Also, the home loan insurance is only going to protect the lender, since the sum assured amount is always equal to the loan balance remaining. A separate term cover, on the other hand, will stay constant, and the earlier you buy, the lower your premium will be.
Moreover, these are not the only concern you need to factor in. Death is not the only trouble that can befall living beings. Disability, illnesses, accidents are some of the proliferating risks in our lives, which are rather more frequent than untimely demise.
Especially when it comes to financial health, such incidents can cause considerable damage to your existing finances and earning potential, without eroding your liabilities; i.e. you still need to take care of your family expenses and, not to mention ‘the EMIs’.
What to Do?
Add a separate Term Insurance Cover to your kitty.
Why? You may ask. So here are the advantages a separate term cover will offer you:
- Offer a Lumpsum to Your Family: In the event of your untimely demise, your family will get a pool of funds take care of their expenses and education goals of the kids so that they can become financially independent.
- Offer Additional Covers: You can add critical illness covers to your term insurance plan. Some insurers also allow integrated term + critical covers at reasonable rates (see table How much does term cover cost?).
Critical Insurance Cover
Critical insurance integrated with your term cover offers following advantages:
- Lumpsum payment on diagnosis of life threatening critical illnesses like heart attacks, renal failure, etc.
- Lumpsum payment on disabilities contracted due to disease or accident
All you need to look for is the number of critical illnesses covered in the plan, and the extra premium charged. Usually, insurers offer up to 20 critical illnesses, but some insurers like ICICI Prudential offer up to 34 critical illnesses along with personal accident benefit.
Thus, an integrated cover (life + critical + accidental) covers all the gaps in your plan to ensure the financial security of your family.
|Scenarios||Home Loan + Home Loan Insurance||Home Loan + Home Loan Insurance + Integrated Term Cover|
|Annual Household Expense including EMIs||Rs. 500,000||Rs. 530,000*|
|Home Loan is repaid by the insurer if the borrower dies within the loan term.||√||√|
|Home Loan is repaid by the insurer if the borrower is totally/permanently disabled within the loan term.||√||√|
|The borrower is diagnosed with a life threatening disease; i.e. cancer, heart failure, etc.||√|
|Borrower is partially disabled||√|
*Assuming an integrated term cover of Rs. 1 crore is bought by a 30-year-old.
Table: How Much Does It Cost?
How to Buy Term Insurance?
Term covers can be bought both online and offline, however, given the numerous benefits you are looking for in your plan. Online is more cost effective in the case of a term cover. Also, you can compare and estimate the best coverage amount for yourself, depending on your loan amount and expenses.
For example, if you are earning Rs. 10 lakh a year and running a home loan of Rs. 25 Lakh (protected with loan protection insurance), you should opt for a term cover of at least Rs. 1 crore. You can increase or decrease the amount based on the kind of goals your kids have for their education and any other important goals your family may have.