Got a Home Loan or Any Other Loan? Term Life Insurance is the Need of the Hour

May 24, 2018 | 6 months ago | Read Time: 4 minutes | By iKnowledge Team

Loans are taken usually to purchase a house or a vehicle or to fund educational aspirations amongst other reasons. The loan needs to be repaid over a fixed amount of time in the form of EMIs. Usually there is only one breadwinner in the household in India. In times like these, where work load brings constant stress, where driving is unsafe, where travel can bring in unforeseeable news, where health can take a downturn due to bad eating habits or high-pressure jobs – it is important that the breadwinner of your family is covered to beat the curveball that life may throw their way. As important it is to repay a loan, it is equally important to secure the future of the family members in case something happens to the breadwinner.

Repaying a loan is an added responsibility which further adds stress to the person who takes the loan. It must be accounted for when planning home expenses, vacations, or other recurring expenses. However, with a term insurance the person is secured that if anything goes wrong or something unfortunate happens to him, then he has taken an insurance cover that protects his family in the situation.

At just a nominal cost, a term insurance plan is a type of life cover that will help your loved ones repay a loan on time in case of an unforeseen event. In most cases should you be a property owner, then a term insurance is a necessity. This is because your liabilities should be covered with an equivalent insurance cover as a backup plan to ensure that your Equated Monthly Instalments (EMIs) are paid on time – should any event take place which catches you off-guard.

At an approximate premium of Rs. 12,000 per annum, an extensive cover of RS. 1 crore can be taken by an individual. However, the lifestyle and age of the policyholder will determine the amount of premium for the term plan. People who smoke need to pay more money for the same amount of insurance cover.

A term insurance plan comes in either a lump-sum (one-time) or in the form of regular income (staggered pay outs). Lump-sum means that the receiver will get the investment amount all at once. However, a staggered pay out acts as a replacement for the policyholder’s family and the claim amount is paid in parts over the course of many years. Choosing the option of having a staggered payment option is beneficial as there will be regular income, which can then be saved and invested throughout various investment avenues.

If the first step in securing your family’s future is in purchasing a term plan, then choosing the right pay out option is the second.

  • Home Loan

The importance of paying EMIs on time is equally as important as home loan protection with an insurance cover. You should opt for a lump-sum pay out if the loan amount is high. Taking a lump-sum pay out option is beneficial as there is more control over your money and you have the freedom to invest it wherever you feel like

Additionally, opting for a critical illness cover is a wise choice. This is beneficial as it will keep your family members in good stead if any critical illness like diabetes should strike unexpectedly. Rs. 20-30 lakh is ideally taken as a critical illness cover. There are term insurance plans that offer life cover for 36 critical illnesses and secure your loved one’s finances after you.

  • Personal Loan

Smaller repayment tenure is usually offered by a bank when a personal loan is taken. You can decide which pay out option suits your situation the best based on the duration and amount of the loan.

In the case of personal loans with high interest rates, an additional critical illness cover should be taken. The outstanding will keep accruing at a high interest rate if a critical illness strikes and one is out of work. Rs. 20-30 lakhs is the ideal critical illness cover that should be taken.

  • Car or Bike Loan

Car loans are more expensive. Hence, you can choose regular pay outs to cover the EMIs. You can choose the combination of lump-sum and staggered pay outs in case of car loans as they are costlier than two-wheeler loans. In this case, 30-50% of the sum assured as lump sum could be good enough. Lump sum could be good enough if you are getting a pay-out of 30-50% on the sum assured.

It is advisable to choose an accidental death benefit rider in the cover. This is because the loan amount is covered and your family will have money left after paying off the loan.

  • Mortgage Insurance v/s Term Plan

Term plans are more beneficial than mortgage plans as the latter is usually taken when you purchase a house on loan i.e. the bank which gives you the home loan also include a term plan with it. This happens because usually, there is a contract between the bank and insurance company. On behalf of the policyholder, at the time of claim the insurer settles the outstanding loan with the bank. Term plans are more flexible and you can make changes in your plan as your personal needs change throughout.

  • Married Woman’s Property (MWP) Act

Under the MWP Act irrespective of the type of loan, if you are married then you should take a term insurance plan. It ensures that creditors do not make any unlawful claims. Properties owned by women are protected under the MWP Act from creditors, relatives, and even their own husbands, in case of a court or any income tax issue.

Having a term plan gives the person security that if anything happens to him or her in the future, the lifestyle of the family can be maintained. Also, without a term plan it will become extremely difficult to pay off the loan when the breadwinner is not around. Hence, it is important that you secure your family’s future with a term plan today.

Advt. no.: IA/May 2018/3972


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