Home loan insurance plans come with a reducing premium or fixed premium?
Home Loan Insurance is an insurance policy that covers the outstanding liability pertaining to a Home Loan. If the borrower passes away or is rendered jobless, the assured amount is used towards reducing the debt burden on the family.
You can avail Home Loan Insurance along with your Home Loan disbursement. The premium payable will be added to the loan amount and the bank disburses this amount to the insurance company as a single instalment along with the loan disbursement. The bank, in turn, splits this amount into small monthly instalments, which will be added to the loan EMI.
For example, if your Home Loan is for Rs. 18 lakhs and the insurance premium is Rs. 2 lakhs, the bank pays the premium amount upfront to the insurance company. Your loan amount would then show as Rs. 20 lakhs, out of which the EMI over the loan tenure will be split towards your loan account as well as insurance account. In effect, you will be paying interest for the premium amount also.
The premium amount varies according to the age of the borrower, loan tenure and availed amount. Premiums usually increase with the age of the borrower as there is more risk involved. The higher the loan tenure, the higher the premium. However, the premium might not decrease as it is often paid upfront.
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