India is a developing country with people moving up the prosperity ladder at a rapid pace. The first major expense that most people bear as their income rises is towards buying a house. Home loans are a preferred tool for a majority of people aiming to buy a house. However, the nature of the home loan is drastically different from other forms of financing. A home loan typically lasts for 20 years or above. Taking a home loan essentially means creating a long-term liability for your family. Moreover, in the younger years of life, the home loan is not the only debt one has, there are other medium and short-term borrowings like car loans and credit card bills.
Due to increased borrowing, the level of household debt in India has increased significantly. Availing a home loan to buy a house is a prudent decision, but you have to take into account the repayment schedule and plan for all eventualities.
No one takes a loan with the intention to default, but many things can go wrong during the tenure of a loan, especially a long-term loan like home loans. The responsibilities as a borrower start after the loan is disbursed. One has to pay a fixed instalment every month, which includes a part of the principal amount and the interest. For instance, if you avail a home loan of Rs. 25 lakhs at 9% interest for a tenure of 20 years, you will be paying Rs. 22,525 every month. The liability remains until the entire loan is paid off. However, a number of people default during the tenure of the loan, primarily due to factors such as:
- Critical illness
- Loss of income due to disability
The family of the borrower becomes the primary sufferer especially in the case of default due to death of the primary bread earner. Term insurance for a home loan can help you ring-fence your family from the liability in your absence. Term insurance plan for a home loan can help you protect your family in your absence. Basic term insurance against home loan could help in the event of the insured’s premature death and provide funds for the repayment of the loan. However, the other two major instances of default too have to be taken into account. One may opt for riders while buying term insurance online to protect against loss of livelihood due to disability or critical illness. Term insurance for a home loan with suitable riders enhances the coverage of the plan and protects your family in adverse circumstances.