Buying a home has always been the biggest dream of every middle class family. It is also one of the biggest investments of anyone’s life too. The day of the possession of the home remains unforgettable throughout our lives. Most of us need and prefer to take a home loan to fulfil our dream to buy a home. Home Loan fulfils the dream of purchasing a dream home but also comes with a liability to pay it off. To make it positive, banks and financial institutions come with various schemes on home loans to make it easy for you to repay the loan. There must be something to protect it financially to ensure that your dream home always stays with your loved-ones.
Usually, the lending financial institution will ask you to opt Home Loan Protection Plan (HLPP) and many people opt for the same without even understanding the actual fundamentals of the Home Loan Protection Plan. Before proceeding to the reasons why you should not opt for a home loan protection plans or HLPP, we should understand what exactly is a home loan protection plan?
What is a Home Loan Protection Plan?
Home Loan Protection Plan is a single premium term insurance plan that covers your outstanding loan taken from a borrower if in case, you die or something happens to you before the settlement of the loan. Home Loan Protection Plan helps to provide protection to your family members as they don’t have to think about the home loan settlement policy. For instance, if your home loan amount is of Rs 40 lakhs and something happens to you with an outstanding amount of Rs 30 lakhs, then your family members have nothing to worry and Home Loan Protection Plan will settle the home loan for you.
Now let us examine 7 reasons, why you should not buy Home Loan Protection Plan in the first place:
1. It’s a onetime premium thing!
For Home Loan Protection Policy, you need to pay a onetime premium, which is the biggest disadvantage. If compared to the normal rates, the House Loan Protection Plan premium is three times the normal rates.
2. It is a five year policy
The Home Loan Protection Plan is valid for only five years and if something happens to the borrower after five years of the policy, the outstanding home loan would not be covered by them. So after every five years, you have to renew your home loan protection policy to make it valid.
3. Home Loan Protection Plan does not cover suicides and natural deaths
So, if you are taking HLPP into consideration because it covers the outstanding loan amount and keeps your family members out of the equation, then keep your eyes open. Home Loan Protection Plan does not cover natural death and suicide whereas the normal home loan payment covers these inevitable circumstances. So, in case of natural death or suicide, the borrower’s family members will be liable to pay the outstanding amount of home loan. Hence, it is advised not to opt for this plan in the first place.
4. Becomes null and void in case of foreclosure of loan
If the home loan is foreclosed by the lender before the actual date, then the borrower will not get any refund of the premium of home loan protection plan. If you took a home loan for 5 years and close it in 3 years, then you will not get any refund for the premium paid and your home loan protection plan will become null and void. Remember, if you pre-pay a part of your home loan then your home loan protection plan will reduce according to the principal amount outstanding.
5. Home Loan Protection Plan becomes null and void if home loan is transferred to a new Bank
If you want to transfer your home loan to another bank or financial institutions offering lower interest rates, then you will end up with an expiration of your home loan protection plan. Also, you will not get any refund for the premium paid.
6. A home loan insurance plan is costlier than a pure term insurance plan
The premium paid for a home loan protection plan is much higher than the premium charged for a term insurance plan of the same amount. The premium of a home loan protection plan is usually 2 to 2.5 times higher than that of term insurance policy.
7. Home Loan Protection Plan is not constant but depleting in nature
Home Loan Protection Plan provider is liable to pay only the loan outstanding amount. Whereas, term insurance plan is constant in nature and the insurance provider is liable for the payment of principal amount. For instance, if the home loan amount is Rs 60 lakhs and outstanding loan amount at the time of the misfortune causing borrower’s death is 40 lakhs, then in HLPP the liability for the HLPP provider will only be Rs 40 lakhs. Whereas, in case of term insurance, the term insurance provider will be liable to pay the principal amount of Rs 60 lakhs.
Usually, the lending financial institution will ask you to opt Home Loan Protection Plan (HLPP) and many people opt for the same without even understanding the actual fundamentals of the Home Loan Protection Plan. Before proceeding to the reasons why you should not opt for a home loan protection plans or HLPP, we should understand what exactly is a home loan protection plan?
What is a Home Loan Protection Plan?
Home Loan Protection Plan is a single premium term insurance plan that covers your outstanding loan taken from a borrower if in case, you die or something happens to you before the settlement of the loan. Home Loan Protection Plan helps to provide protection to your family members as they don’t have to think about the home loan settlement policy. For instance, if your home loan amount is of Rs 40 lakhs and something happens to you with an outstanding amount of Rs 30 lakhs, then your family members have nothing to worry and Home Loan Protection Plan will settle the home loan for you.
Now let us examine 7 reasons, why you should not buy Home Loan Protection Plan in the first place:
1. It’s a onetime premium thing!
For Home Loan Protection Policy, you need to pay a onetime premium, which is the biggest disadvantage. If compared to the normal rates, the House Loan Protection Plan premium is three times the normal rates.
2. It is a five year policy
The Home Loan Protection Plan is valid for only five years and if something happens to the borrower after five years of the policy, the outstanding home loan would not be covered by them. So after every five years, you have to renew your home loan protection policy to make it valid.
3. Home Loan Protection Plan does not cover suicides and natural deaths
So, if you are taking HLPP into consideration because it covers the outstanding loan amount and keeps your family members out of the equation, then keep your eyes open. Home Loan Protection Plan does not cover natural death and suicide whereas the normal home loan payment covers these inevitable circumstances. So, in case of natural death or suicide, the borrower’s family members will be liable to pay the outstanding amount of home loan. Hence, it is advised not to opt for this plan in the first place.
4. Becomes null and void in case of foreclosure of loan
If the home loan is foreclosed by the lender before the actual date, then the borrower will not get any refund of the premium of home loan protection plan. If you took a home loan for 5 years and close it in 3 years, then you will not get any refund for the premium paid and your home loan protection plan will become null and void. Remember, if you pre-pay a part of your home loan then your home loan protection plan will reduce according to the principal amount outstanding.
5. Home Loan Protection Plan becomes null and void if home loan is transferred to a new Bank
If you want to transfer your home loan to another bank or financial institutions offering lower interest rates, then you will end up with an expiration of your home loan protection plan. Also, you will not get any refund for the premium paid.
6. A home loan insurance plan is costlier than a pure term insurance plan
The premium paid for a home loan protection plan is much higher than the premium charged for a term insurance plan of the same amount. The premium of a home loan protection plan is usually 2 to 2.5 times higher than that of term insurance policy.
7. Home Loan Protection Plan is not constant but depleting in nature
Home Loan Protection Plan provider is liable to pay only the loan outstanding amount. Whereas, term insurance plan is constant in nature and the insurance provider is liable for the payment of principal amount. For instance, if the home loan amount is Rs 60 lakhs and outstanding loan amount at the time of the misfortune causing borrower’s death is 40 lakhs, then in HLPP the liability for the HLPP provider will only be Rs 40 lakhs. Whereas, in case of term insurance, the term insurance provider will be liable to pay the principal amount of Rs 60 lakhs.
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