Home Loan Insurance

Insurance

Home loan insurance (mortgage protection plan) pays off the outstanding home loan if the borrower dies during the loan tenure. Protects family from losing the home. Different from homeowner's insurance (which covers property damage).

In detail

Two types:n1. MRTA (Mortgage Reducing Term Assurance): cover reduces with outstanding loan amount. Cheaper but less flexible.n2. Level term + loan: buy a separate level term plan for full loan amount. Better as cover remains constant even if you close loan early.nnAvoid: bank-bundled single premium home loan insurance (added to loan amount -- you pay interest on the insurance premium for 20 years, very expensive). Buy separately as a regular term plan.

Formula

Annual premium for MRTA (approximate): Rs 50L loan, 30 years, age 30 = Rs 15,000-20,000/year

Real-life example

🇮🇳 India example

Vijay takes Rs 50L home loan. Bank offers to bundle Rs 1.2L single-premium insurance into loan. This Rs 1.2L at 8.5% over 20 years costs Rs 2.85L total. Instead, he buys a separate Rs 50L term plan for Rs 6,000/year = Rs 1.2L over 20 years. Saves Rs 1.65L.

Frequently asked questions

Is home loan insurance mandatory? ▼

No. RBI prohibits banks from making home loan insurance mandatory. However, banks often make it seem required. You have the legal right to refuse and still get the loan.