These days’ home loans are the best way out for buying a dream home. But many of the loan borrowers have a fear that, will their family be able to bear the burden of EMI if something unexpected happens? Well, if you are thinking along these lines, you are probably worrying too much. In today’s financial world, banks have solution for everything and so in such cases, a Home loan protection plan (HLPP) offers the best solution to all your problems.
What is HLPP?
A home loan protection plan (HLPP) is a plan which covers the outstanding home loan amount with the bank/lender if the borrower faces any critical illness or something unexpected happens to him/her. In short, it can be said that it saves loan borrowers from the risk of becoming a defaulter.
If you take a HLPP, then in such cases, the bank recovers the remaining outstanding amount from the insurance company and does not trouble the borrower family members. However it is not mandatory to buy an HLPP while availing a home loan, the borrower has the power for its acception or rejection.
On the other hand, if a person is interested in HLPP, there are two options available. One option is to pay the premium as a lump-sum amount in one single payment. The other is to include the HLPP Equated Monthly Installment (EMI) clubbed with the home loan installment.
Being a pure Term Plan, there is no Maturity Benefit in this plan. However, in case of unfortunate death of the loan borrower within the Policy Tenure, the corresponding Sum Assured is paid as Death Benefit to cover the outstanding Home Loan amount.
Types of HLPP
Depending on the type of cover, three types of home loan protection plan are available in the market:
- Fixed cover plans: In this, the cover remains fixed for the entire period.
- Reducing cover plans: Under this plan, the cover reduces along as your liability falls i.e the life cover goes down just like loan’s outstanding principal amount.
- Hybrid Plans: The cover remains fixed for a certain period and then start falling for the remaining period.
According to most of the experts, the reducing cover plan is the best among all three.
Benefits of HLPP
- In case of unfortunate death, the family members don’t have to bear the payment of EMIs. The entire amount due is taken care by the insurance companies who pay it to banks.
- The borrower gets tax benefits under section 80 C of the income tax act.
- A single life cover includes all the borrowers in a joint loan. No need to purchase separate HLPP for the specific borrower.
- Apart from sudden death, critical illness and other disability are also covered under this plan. Diseases covered under HLPP include Cancer, Kidney failure (end-stage renal failure), Primary pulmonary arterial hypertension, Multiple sclerosis, Major organ transplant, Coronary artery bypass graft, Heart valve surgery, Stroke, Myocardial infarction (first heart attack), Coma, Total blindness, and Paralysis. However, this coverage may differ from banks to banks.
Things to remember before applying for HLPP
- In case a person is diagnosed with a critical illness, they have to immediately inform the bank about it. Any failure to do so may result in the bank refusing to accept your request.
- In case the details provided in the papers are found to be wrong at the time of the claim, the request for a cover will be rejected. Check all the details twice because, even if the mistake is made on the part of the bank, the borrower has to bear all the cost.
If a person is already suffering from an illness and hide it with the bank at the time of applying for the policy, then claim for protection will be rejected.