new Delhi. While giving home loan, most of the banks pressurize them to buy insurance to protect their money. It is not only more expensive but also does not get the benefit of tax exemption on it. Instead buying term insurance would be more beneficial. Arvind Hali, MD-CEO of Motilal Oswal Home Finance Limited, says that banks are most concerned about their home loan amount.
He says that while giving loans of lakhs of rupees, banks offer Home Loan Protection Plans (HLPP) to make their repayment secure. The cover of this insurance is equal to your home loan amount. As you pay the EMI of the loan, the insurance cover also reduces in the same proportion.
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Understand the math of HLPP
Suppose, you have taken a home loan of 40 lakhs for 20 years and after paying this EMI for 5 years, the remaining liability is 30 lakhs. At this time, in the event of an accident with the insured, the company will pay only the remaining home loan. That is, the coverage amount of your HLPP of 40 lakhs will now come down to 30 lakhs.
Term Insurance: Cheaper and more coverage
By the way, term insurance has no direct relation with home loan. One can buy term insurance even without a home loan. But if it is there then the bank will not pressurize you for HLPP. Term insurance offers higher coverage by paying lower premiums as it is not directly linked to the home loan. Hence, along with EMI payment, its coverage amount is also not affected. For example, if you have taken a term insurance of 40 lakhs, then the entire sum assured will be paid in case of any untoward incident during the term of the policy. Out of this, the family can use the remaining amount by paying the remaining amount of the home loan.
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effective in saving tax
HLPP is added to your home loan so that the tax exemption on it remains linked with the loan itself. Tax exemption of 1.5 lakhs is available in section 80C and 2 lakh in 24B of the Income Tax Act on home loan. Separate tax exemption can be taken on the premium of term insurance.
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The profit will remain even after restructuring the debt
Lakhs of people have done debt restructuring in the pandemic. In HLPP, after the loan restructuring period increased from 20 years to 25 years, you will get the cover only for 20 years. Similarly, on reducing the tenure, the loan amount may come down but there will be no change in the Sum Assured already fixed in HLPP and you will have to pay premium on the entire amount.
Build a contingency fund of 6 EMIs
Banking experts Ashwini Rana says that to make a home loan completely safe, it is not only necessary to provide insurance cover, but it would also be better to create a fund of EMI for emergencies. You should have an amount equal to 6 EMIs. Due to this there will be no crisis on payment and CIBIL score will remain even higher.
Tags: Home loan EMI, Insurance
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