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September 13, 2005 13:45 IST

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O friend of mine, still single, took a home loan jointly with her father. She had one nagging worry though
-- if something happened to her, what would happen to the home loan?

She did not want her father to bear the financial

brunt of repaying the loan or having to sell the house
to repay the bank.

Her brother faced a similar problem. Just married, he

took a home loan and is worried that, should
something happen to him, his wife would be saddled
with the responsibility of paying off the debt.

If this thought has crossed your mind, maybe you

should consider home loan insurance. That's right.
We are not talking about home insurance but
insurance for your loan.

¦ 

 
    


 
 

The loan. Not the home.

What this insurance takes care of is the amount you will owe the home loan company or bank.

Also, what you have paid is not taken into account. Just what has to be paid.

Let's say you took a home loan of Rs 10 lakh (Rs 1 million).

Let's also assume that after you pay up Rs 2,00,000 of the principal amount, you meet with an accident.
This means, a balance of Rs 8,00,000 still has to be paid to the home loan company. This is the amount
the insurance company will cough up. They will not pick up the tab on the entire amount (Rs 10 lakh) but
only on the balance amount owed (Rs 8 lakh).

An exception is ING Vysya Bank's [ Get Quote ] home loan. In the event of something unfortunate
happening to you, not only will the balance loan amount be paid off, your family will also receive the
principal amount that has already been repaid on the loan (Rs 2 lakh in the above example).

This way, your family is not left without a roof over their head; neither do they have the hassle of paying
up the Equated Monthly Installment (monthly payment to be made to the home loan company).

Of course, like any insurance policy, a premium will have to be paid. The insurance companies and home
loan companies are not too forthcoming with how much this will cost, but say the premium will be decided
on a case-to-case basis.

This premium will depend broadly on four conditions:

2. The age of the person taking the loan: The older you are, the higher the premium.

á. The loan amount: The larger the loan amount, the higher the premium.

`. The tenure of the loan: The longer the repayment period, the higher the premium.

. The medical record of the individual: If you are in good health, the premium will be lower. For instance,
if you have already had a heart attack or are in the high risk category, the premium will be higher.

¦ ^ 

 


 

Here are 10 questions to ask when looking at home loan insurance.

2   


 
 

Is it for death by any cause or is it only for death by accident?

ICICI Bank [ Get Quote ], for instance, offers a free accidental death cover. This means your family will
not face any problem concerning the loan repayment if you meet with an accident that results in your
death.

Also check whether there is a permanent disability clause. If this clause is present, the insurance
company will clear the loan even if death does not occur, but permanent disability does.

á   
 


The home loan companies would have teamed up with life insurance players to give you this benefit, so
you do not have to scout for an insurance.

IDBI Bank has teamed up with Birla Sun Life Insurance Ltd and HSBC with Tata AIG Life Insurance
Company. Union Bank of India [ Get Quote ] has teamed up with SBI [ Get Quote ] Life and Corporation
Bank [ Get Quote ] with Life Insurance Corporation of India.
*ou will not have to do any running around since the home loan player will do all the necessary
arrangements and hand you the insurance forms. When (and if) the payment has to be made, the
insurance company will make it directly to the bank or home loan player.

To claim the insurance, all you have to do is hand over the death certificate or medical certificate for
disability to the home loan company.

`  
        

Some players offer this free of cost.

ICICI Bank says it offers the accidental death cover totally free to the person taking the home loan. ING
Vysya too offers an insurance cover at no cost to the person taking the home loan.

The rest of the players charge a premium.

   
    
 


The insurance is generally offered for the tenure of the loan and for the loan amount.

However, do check if they have any limits.

IDBI Bank, for instance, offers the insurance scheme up to a maximum of Rs 50 lakh (Rs 5 million) and
for a maximum of 25 years, which is their loan and tenure limit.

i         


   
 

The insurance company insists the premium is a one-time payment. But the home loan company gives
the customer an option.

Let's say you take a home loan and then get it insured.

*ou can pay the insurance company the entire amount upfront.

If you do not have the money, the home loan player will pay the premium on your behalf. Now, you have
to pay the home loan player. They will add this premium to your total loan amount and it will become part
of your EMI.

Let's say you took a home loan for Rs 10 lakh (Rs 1 million) and the insurance premium is Rs 1,00,000
(this is only an example and not an indication of premium rates).

The home loan company will pay the Rs 1,00,000 premium to the insurance company so your loan is
insured. Now, your total home loan will be Rs 11 lakh (Rs 10 lakh + Rs 1 lakh premium).

Should something happen to you during the loan payment period and the balance outstanding is Rs 5
lakh, the insurance company will pay the home loan company the entire loan outstanding of Rs 5 lakh.

However, this option will be slightly more expensive for you. *ou will have to pay the home loan company
interest on the premium since they have included it in your overall loan. Don't, however, fret if you have to
pay your premium this way. After all, the amount spread over the tenure of the loan does not amount to
much every month.
X   

 

 

This varies from player to player.

IDBI home loan customers must either submit a health declaration form or undergo a medical
examination.

If you take a home loan up to Rs 10 lakh (Rs 1 million) from Corporation Bank, a simple declaration of
good heath is sufficient. Ditto if you are up to 45 years of age.

If you are above this age limit, or your home loan limit is higher, a medical examination at your cost is
necessary.

o O   
 




Union Bank and Corporation Bank will not offer the insurance cover if death occurs within the 45 days of
the start of the insurance cover, unless the death is due to an accident.

Generally, death by suicide too is never covered.

Ñ   
  


What if you repay your loan way in advance, say a few years before its scheduled tenure? In that case,
you would have paid the insurance premium for the entire tenure. Find out whether you lose the money or
get it back.

Corporation Bank, for instance, which has teamed up with Life Insurance Corporation of India, says the
appropriate amount shall be refunded by LIC [ Get Quote ].

†   !



If it is a loan with a nominee, then no question arises since the main applicant will take the home loan
insurance.

If it is a joint loan, two policies will have to be taken in the names of the joint applicants. A single
application form would be used with the names of both the customers for policies and the premium
amounts would get doubled.

HSBC offers the younger applicant a 10% discount on the premium.

In such cases, if one of the applicants dies, the loan is cleared by the insurance company.

2
    



Since you are paying a life insurance premium, you can get deduction under Section 80C. Read O
"

Ñ
 to understand it better.

However, if it is clubbed with your EMI payments, you will not get the insurance benefit. The principal
payments, however, will still get a deduction under Section 80C and the interest payments under Section
24.
Under Section 24, the maximum amount of interest that can be deducted from your income is Rs
1,50,000. As a result, your taxable income decreases by that amount.

Let me explain with an example.

Salary income: Rs 3,50,000

Interest payment on home loan: Rs 1,60,000

Taxable income = Rs 3,50,000 (income) - Rs 1,50,000 (maximum limit for interest on home loan) = Rs
2,00,000

Either way, you don't lose out. Whether you pay the premium at one go or along with your home loan, you
still get the tax benefits.

¦      

If you already have a home loan but no insurance, ask your home loan company or bank if they will offer
insurance for the remaining time frame.

If they do not, then approach any life insurance company and ask them if you can buy a policy on your
home loan.

^
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ü     

One of the most important steps towards a sound financial plan for newly married couples is to
get each other insured. Family needs vary for each lifecycle stage. For a young, unmarried
person with no dependants, life insurance is not a priority. But the minute he gets married, he has
a dependant in the form of his wife (dependant or not) and so, life, health and accident/disability
insurance become priorities.

When kids come along and your parents too become your dependants, the outlay on your life and
health insurance will increase. However, even when not married, always keep health insurance
so that if you incur a major illness or accident, your family will not be burdened.

Ideally, one should purchase an additional health cover and not depend only on the one provided
by one's employer. This holds ground on periods of unemployment. Besides, the younger you are
when you buy a health and life plan, the cheaper it will come. Add-on policy riders such as
physical disability/critical illness even though it may increase the premium.

Please note that even if both the partners are financially independent, it is wiser to purchase life
insurance on each other's name. Once children come into the picture, the nomination can always
be changed in their favour without affecting any increase in premium. However, when children
are young, the life insurance payment would still need to go to the surviving spouse who would
need that money to raise the children.