How Can Your Life Insurance Policy Help Pay Off Your Home Loan?
Having your own house is a dream for most people. Everybody longs for the sense of security of having their own roof over their head. However, the real estate market has skyrocketed and made it difficult for individuals to afford to buy a house without any external help. This is where home loans have come to the rescue. An individual can simply purchase their desired house with a home loan. Nowadays, the interest rates are also low, so one can easily afford to pay the instalments.
When you take a home loan, one thing to understand is that you are in debt for the long haul. It is essential that you do your financial planning in accordance with your home loan. In an unforeseen situation where you lose your life, the burden of paying home loan instalments would fall on your family members. It can be a scary place for your family members to be in, as it will cause unnecessary financial turmoil. The worst scenario is if you had many dependents, as in your absence, they would fail to pay the loan instalments altogether. The last thing you want is for your family to suffer financially and have a tough time paying for the home loan in your absence. Hence, you need a life cover to secure the lives of your loved ones in your absence.
How do lenders mitigate risks?
It is essential to understand how your lender, the bank, protects themselves from unforeseen risks. It is important to understand that if in your absence your family is unable to repay the loan, how does your bank manage such a scenario? The value of the asset in this scenario of the house helps in protecting lenders from heavy risks. When you take a home loan, most lenders require you to at least give 20% of the property value as a down-payment. They also ensure that they only lend to those individuals who have the financial capacity to repay the loan. They ensure that the monthly instalment of the home loan should not exceed 50% of the monthly take-home salary of the borrower.
In a situation where you or your family in your absence is unable to repay the loan, the bank takes over your property. They do this to recover from the loss they incur, because of the inability of the owner to pay instalments. A life insurance policy comes in handy during such unexpected times.
How does a life insurance plan help a home loan borrower?
When you buy a life insurance plan, you get a life cover for the tenure specified in the policy. During the tenure, if you happen to lose your life, your nominee will be paid a sum assured. The sum assured amount that you choose is a crucial decision that impacts you and your family. Ensure that you choose coverage which is sufficient for your family to live a quality life along with repaying your home loan and other liabilities. You can use a life insurance premium calculator to get an estimate of the premiums you need to pay for your desired sum assured.
If you find the premium value is too high, you can simply opt for term insurance. Term insurance offers you a life cover for a fixed period of time. It is popular since you can get a sufficient sum assured for an affordable premium. This will leave you to rest assured that in the worst scenario where you lose your life, your family will not face any financial struggles in your absence. Also, ensure that the tenure of your term insurance plan is more than that of your home loan. This allows your term life insurance policy to be active during the entire duration of the home loan.
The purpose of a life insurance policy is to protect your dependents in case something was to happen to you. People often fail to take their liabilities into consideration while buying a policy. However, a huge liability like a home loan directly impacts your and your family’s finances. Use a life insurance calculator to ensure that you choose coverage taking your liabilities and your family’s needs into consideration.
Being an earning member of the family, it is vital that you protect your dependents from any financial burden. Ensure that you choose a sufficient life cover for your loved ones which meets their needs and covers all the liabilities too.