Safeguard your investment

Buying a home is one of the most important investments one makes in life .
Being a big ticket item, one needs to look at it from a long-term perspective.

After all, the funding is usually done through a home loan, with a tenure ranging between 15-20 years, stretching up to 25 years in certain cases. The lengthy repayment period makes it possible to create a major asset that would otherwise have been beyond reach where the young upwardly mobile generation is concerned. However, it also creates a huge liability throughout that period, which spans almost two decades.

Why should I worry?
The home loan equated monthly installment (EMI) takes a huge chunk out of household finances. If heaven forbid, the bread earner of the family were to pass away due to some unforeseen reason, managing those regular payments becomes a huge question mark.  

What happens next?
While banks do tend to be sympathetic, there are limits beyond which they too cannot avoid foreclosing the property to recover their outstanding loan amount. Considering the property is already mortgaged to the lending institution, the family members of the deceased have no option but to vacate the premises.

How to avoid it?
To avoid such a scenario, it is advisable to take a term insurance policy that covers your liability to the extent of the home loan exposure. If this is done, even in case the bread winner passes away unexpectedly, the loan would be repaid by the insurance company.

How will it benefit?
The remaining family members would not only continue to have a roof over their heads but also be able to bank upon the concrete asset created with so much hard work, effort and money.     

Why is this necessary?
Since most of the initial home loan repayment goes towards interest component, you may find that even halfway through the tenure, a substantial amount of the principal loan is still outstanding.

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Expert Speak

The right approach
Sailesh Multani, Chief Financial Planner, Edelweiss Financial Planning, points out that one important factor of insurance is risk coverage. “When you talk about protection, in case the bread winner is not there, there has to be a a sufficient amount for the regular expenses and important goals, till the children grow up and become independent. Similarly, open liabilities like a home loan, also need to be covered, so that the insurance claim is sufficient to repay the outstanding loan. Some companies offer home loan term protection plans. Here the sum assured goes on reducing with the outstanding loan amount. We advise people to opt for two separate pure term plans, wherever possible, one for the home loan; the other for regular expenses and goals so that the family remains protected even after the loan is repaid. Taking one big term insurance for the loan duration and then a new policy is not advisable as you may have to overpay premium due to health issues at that age,” he explains.

Sailesh Multani, Chief Financial Planner, Edelweiss Financial Planning