Housed in safety
Should you buy home insurance or home-loan insurance is a million-dollar question. People often use the terms interchangeably, though they are not supposed to be used that way. Fundamentally they are apples and oranges.
Home insurance protects you from losses arising out of damages caused to the structure of your house and its contents. In contrast, a home-loan insurance protects a person (or his family) from the liabilities of the home loan or the equated monthly instalment (EMI) payments. Let’s dive into the details.
Home insurance
On April 1, 2021, IRDAI made it mandatory for all general insurers to offer standard home insurance policy called ‘Bharat Griha Raksha’. For instance, if someone’s house and the contents thereof are damaged owing to fire accident, flood, earthquake, volcano or other accidents or natural calamities, home insurance acts as a lifesaver.
Under the policy, three types of coverage – for building structure, things at home and optional cover – are offered. One can include the optional cover in his/her policy by paying an additional premium. The optional cover is available for valuables such as jewellery, silverware, paintings, etc. based on agreed value. Further, this also includes personal accident cover if the damage to the building also resulted in the death of the insurance policy holder or his/her spouse.
Mohammad Monish, senior associate, home insurance, PolicyBazaar, (PW24995), says, “Most insurers offer coverage in the standard policy for cost of repairs, architect or surveyor’s fees, costs of clearing debris, loss of rent, rent for alternative accommodation or cost of construction. However, some insurers may charge additional premium by offering few additional benefits via add-ons, making the policy costly. Therefore, buyers must carefully study the inclusions of standard policy, inclusions through the add-ons, premium amount payable, etc.”
Home-loan insurance
A home-loan insurance prevents you from losing the ownership title of your house if you failed to pay EMIs to loan-providers (banks) on time. That is, when a borrower of a home loan defaulted on EMIs owing to death or other adversity, home-loan insurance comes in handy.
For instance, let’s assume Mr. X had availed a loan from ABYZ bank and he must pay EMIs for 30 years. During the tenure of the loan, if Mr. X met with an accident and died, the balance loan amount due to ABYZ bank would be paid by the insurer. This way, Mr. X’s family members would be relieved from the burden of continuing to pay the EMIs. Of course, home-loan insurance coverage varies from one insurance company to the other. Some provide coverage only on the demise of the insured person, while some offer protection even when the person has critical illness, met with accident or lost job, thereby losing the earning potential. However, terms and conditions are not same across insurers.
Who can buy?
Any individual can purchase a home insurance policy provided he owns a property in his name; that is, only if he is a landlord of any property. A tenant cannot buy a home insurance covering the structure of a building, for, he has no insurable interest, as per insurance parlance. However, he could avail a policy covering contents/valuables stored in the house.
Home-loan insurance cannot be purchased if you do not have any existing home loan. For, the very policy is designed to offer protection only for the outstanding loan amount at the time of adversity.
Premium payable
Often, the premium payable for home-loan insurance would be much higher than that payable for the standard home insurance.
Home-loan insurance could help you in reducing the down payment needed at the time of availing the home loan, as the insurer ‘guarantees’ repayment of the loan at the time of any untoward/adverse event. However, the standard home insurance has zero impact on down payment.
Are they mandatory?
Mr. Monish says, “Both Insurance Regulatory and Development Authority of India and Reserve Bank of India have not made it mandatory to buy home insurance or home-loan insurance. Customers can choose to buy or not to buy but both are beneficial to them if claims are made as per the policy coverage.”
(The writer is an NISM & CRISIL-certified wealth manager)
Published – March 24, 2025 06:12 am IST
