Having a home loan is probably one of the biggest debts you may owe. And, in the event of unfortunate demise, the burden of repayment may fall on your family. This is where a term plan can come to your rescue. Read on to know more about the connection between term insurance and home loan.
Today, most of the youngsters set high goals for themselves and are focused on fulfilling them. They don’t hesitate to avail a loan to buy a new home, study abroad or purchase a lifestyle item. However, while you may easily get the credit you need, the situation can get tricky if you are unable to pay off the loan. The last thing you would want is your family facing the burden of repaying your loan.
To avoid such unpleasant situations, experts recommend having a term cover for you and your family so that it gives you the much-needed financial protection. Contrary to the popular belief, a term plan is an excellent financial tool to secure your loan.
A term insurance policy is the most basic form of life insurance and yet it is considered a must-have investment for all. As the name suggests, term insurance offers coverage for a specific period and since it is a pure-protection plan it does not have a savings or investment component. Nor does it offer any maturity benefit. But, what it does is, it allows you to buy a policy with a high sum assured amount at an affordable premium.
In the event of your unfortunate death during the policy period, the insurance company will pay your family the death benefit. The amount can help your family manage their expenses and pay off the debts you may have like a home loan without facing any financial hassle.
One of the key aspects of getting the most out of your term insurance policy is to choose the right coverage amount. You must determine the sum assured based on your current income, liabilities, the number of dependent family members, etc. Generally, most insurance experts recommend buying an optimal coverage wherein the sum assured is about 15 times your current annual income.
The high coverage amount will ensure that your family has sufficient funds to pay off the loans (if any) and yet maintain their existing lifestyle. Another important thing about using the term insurance policy for home loan repayment is choosing the right payout option. Today, many insurance companies give you the flexibility to choose the pay-out mode. You can choose between a single one-time pay out or a recurring pay out.
If you are nursing a home loan, it is best advised to opt for a lump sum amount. In this case, the nominee will receive the full sum assured amount in a single payment. And, since the home loans are generally on the higher side, the beneficiary can use the pay out to repay the amount in full, close the home loan account and be debt free.
The best term insurance policy is the one that gives your family a complete financial protection from all liabilities. So, when you buy a term plan, you must consider your family’s financial needs and choose the coverage amount accordingly. It should be comprehensive enough to cover your loan.