Take insurance and spare your survivors the home loan burden

In Case Of Eventuality, Insurer Will Settle The Debt On Behalf Of The Family

Nikhil Walavalkar MUMBAI

    HOME loan borrowers should ensure that their debt do not continue beyond their death. One option is to buy term insurance or regular premium term insurance for a tenure at least equal to the loan tenure and for a sum that equates the loan amount. The other option is a mortgage reducing term insurance (MRTI) on group life insurance platform. The cover offered falls each month in line with the reducing principal amount outstanding after every EMI is paid. In other words, the cover reduces as the borrower goes on repaying the loan. In case of eventuality, the insurer pays off the sum assured at the time of death of the borrower to the bank and settles the loan.
    The good part for those with home loans who do not have this cover is that one can opt for an MRTI in the currency of the loan if he is not bought at the inception of the loan. The sum insured reduces as the outstanding loan reduces. If money is left after paying for the loan outstanding, the bank pays the money to the borrower's nominee. This is possible in loan part pre-payment cases. But a point to note is that the cover ceases as the loan comes to an end.
    Some insurers offer additional benefit of total and permanent disability though at an extra cost. Though such additional benefits carry a set of exclusions and a provision of waiting period, they enhance the insurance solutions. The key benefit of MRTI on group life platform is the concept that the borrower need not undergo medical test if he satisfies certain norms in terms of sum assured required, age, occupation and level of education attained. Of course this benefit is subject to signing a good health declaration (GHD). Here the product covers over a term insurance product in terms of ease of purchase.
    "In case of claim settlement, the banker has a helping hand as the banker is an interested party. The claim settlement is faster in group products than in the individual life products," said a senior executive with a private sector bank. But there is a flipside to the MRTI group life covers. In a rising interest scenario, the MRTI cover does not serve the purpose fully as the cover ceases as per the contract date and does not get extended along with the tenure of the loan. Sometimes it becomes difficult to buy additional cover at the end of original cover due to high age of the borrower and higher cost of insurance. To overcome this draw-back, a borrower may consider buying a level cover regular premium plan for a lifetime or for maximum possible term.
    Those who want a loan cover on the individual platform can avail of LIC's mortgage redemption assurance policy. This is a without profit product with no surrender value. The buyer of the policy has to undergo medical examination. Insurance premiums payable qualify for tax deduction under section 80C of IT Act. Proceeds from the insurance products above, if any, in the hands of the nominees are tax free under section 10 (10D) of IT Act.
    nikhil.walavalkar@timesgroup.com