Risks accompany home purchase and one should be in a position to identify the risks associated with the purchase and counter them. Among such risks is the life of the person who avails a home loan. Normally a person takes a home loan for a longer period unlike consumer goods. As the life expectancy of a person is not known, it is always better to cover his life so that his family will not be put to difficult times in servicing the loan at bad times.
To prevent one's family from the burden of servicing the loan after a bread-winner's demise, a home loan taker can buy a policy against home loan protection. A number of insurance companies offer varied products.
Normally one needs to buy a reducing liability cover. A reducing liability insurance plan goes hand in hand with EMI amortisation schedule of one's home loan. The policy always covers the outstanding amount of the loan as the sum assured. This policy is always taken after one's fully sanctioned loan is fullly taken or disbursed by the bank or HFCs.
The policy helps dependents in case of an untimely death of the owner. The policy is always issued in the name of the borrower and the sum assured is paid to the person named as beneficiary. Beneficiary does not need to liquidate any assets to repay the loan.
Even though taking such types of policies increases the expenses, when the benefits of risk coverage are weighed against the cost, it is worth taking them. Sometimes the insured is asked to go for medical check-up before taking the policy.
The policy comes to an end at the end of home loan tenure and as with any other term plans, no payments are made if the policy holder survives the plan period. The premium is generally paid annually or through a one-time upfront pament. One-time premium payments will work out cheaper than annual options due to time value of money. Some HFCs are even adding up the one-time payment to the loan amount santioned so that the individual pays the premium in installments by way of EMIs.
The second risk is any harm to the house. One needs to insure against these threats also. A householder's comprehensive policy covers the home against fire and allied perils including natural disasters. The policy can also be taken for the contents of the house including jewelry, TV, fridge etc. It can be covered against mechanical breakdown of electronic appliances including voltage fluctuations. The coverage of valuable contents is done by declaration basis as the loss is normally indemnified at replacement value.
It is always advisable to go for insurance coverage against home purchase without bothering about the costs because of uncertainities in future.