Insuring Your Home Loan

Buying an insurance cover for this loan amount in case of death or disability is a prudent way out of this problem. There are all kinds of insurance products available in the market but they can primarily be split into three types. Each product has it's own advantages and drawbacks but I would largely prefer the 3rd kind of insurance product mentioned below.

In the case of an untimely death or sudden accident / disability of an earning member making the monthly EMI for the home loan becomes a huge burden on the family. The bank is allowed to repossess the house and sell it so as to recover the amount.

Fixed cover for the entire loan amount for the duration of the loan. So if you have taken a loan of 25 lacs for 20 years you are covered for the entire amount for the entire duration of the loan. This however leads to a fairly high premium for the duration of the entire loan.

A hybrid product that offers coverage of the entire loan amount for a fixed number of years (say 3 or 5) and then the coverage amout reduces along with the outstanding amount. The premium here is initially high but comes down with time as the overall coverage reduces.

Cover for the outstanding loan amount only. Some home loan insurance companies offer products where the insurance cover decreases on a real time basis as you keep repaying your home loan.As you pay down your loan installments your coverage amount also falls and so does your premium. This is probably the best product of the lot since the premiums are reasonable and come down over the period of the loan.