Homes do not come easy
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After signing for a home loan, make sure to sign up for an insurance product. It makes life a lot easier for your survivors, writes Srikala Bhashyam
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Photo: s. ramesh kurup
TRICKY SITUATION: Study all options before finalising your home loan.
Life hasn’t been easy for home buyers these days. Interest rates have been steadily rising and the benchmark rate or prime lending rate (PLR) has climbed to 14 per cent. In addition, the property prices are not showing any signs of correction. Simply put, it has made life only tough for home buyers. If life is tough for prospective buyers, it is no better for those who have bought property in recent times.
The rising rates means EMIs (equated monthly instalment) will start climbing upwards. Those who opted for floating rate have already been asked by their banks to pay more.
In such a scenario, property buyers are likely to focus more on their interest rates than other aspects of borrowing. In fact, very few borrowers actually think of covering their home loan liability with an insurance policy. Insurance policy can actually relieve you from the long-term burden of home loan even in the event of death of the prime borrower.
Long-term liability
Insurance policies often are associated with tax planning and individuals fail to make good use of this product. Next time when you think of insurance policy, calculate the liability you have undertaken.
While personal loans and credit card payments are short-term liability, property loan invariably is a long term liability, requiring you to pay EMIs for as long as 10-15 years. As a result, not only is it important to keep enough cash in your bank account for monthly repayments, but you should also keep enough cash till the loan is repaid.
That doesn’t mean you should keep cash in your savings account when you take a home loan! Instead, take an insurance policy so that your family is not burdened with the home loan repayment in the event of your death.
There are different products through which you can provide cover for long term liability.
The cheapest and simplest one would be term insurance.
Take an insurance cover which takes care of your home loan liability. If you have taken a home loan of Rs. 15 lakh, your total liability over a period of 15 years may run into over Rs. 25 lakh.
As a property owner, your term insurance should be for a minimum of Rs. 25 lakh. Even in the event of death, this cover will come in handy for the family. The good thing is that term insurance comes very cheap and a 35-year-old individual can take a cover for Rs. 25 lakh by paying less than Rs. 25,000 annually.
Though you can also look at other insurance products for covering your liability, they may prove expensive when compared with term insurance policies. Since term insurance policies don’t give any survival benefits or don’t assure any returns to policyholders, they are always cheap when compared to other insurance products.
But keep in mind that the premium you pay is only for a year and hence don’t forget to renew your policy when it matures. Otherwise, the purpose of a term insurance product may be defeated.
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