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Your lender may insist on you Buying a Home Loan Protection Plan (HLPP) along with HL. They may also tell you that it is compulsory. But it is at your discretion whether to buy it or not.
Now, HLPP is an insurance plan that covers any outstanding amount of the HL in the event of your death within the loan tenure.
A bank may give you an option to club the premium amount with the loan amount.
How does an HLPP work?
HLPP works slightly different from rest insurance plans:
1. The insurer settles the loan with the bank in the event of your demise.
2. Excess funds, if any, after loan repayment is provided to your nominee.
Benefits of HLPP:
1. You will be eligible for tax benefits under Section 80C.
2. You can also opt for riders such as critical illness or disability rider. The premium will increase accordingly.
Demerits of HLPP:
1. HLPPs are expensive.
2. If you choose to club your premium with the loan amount you will not be entitled to any tax benefits because the bank pays the premium.
3. HLPP may or may continue to cover the HL in case you pre-close or transfer it to another bank.
Therefore, it is beneficial if your opt for Term Life Insurance. A sufficient Life Insurance is capable of paying outstanding loans, fund financial goals and provide for family’s regular expenses. Also, a single Term Plan covers all the borrowers of a joint loan. A single life cover is enough.
Term Loan is better than HLPP because:
1. It is cheaper than HLPP.
2. Whereas, life cover in Term Plan doesn’t change.
3. Term Plan cover continues even if shift your loan to another lender.
Some banks may offer a Term Plan instead of an HLPP. Don’t blindly accept the offer because premiums in such cases may be higher as insurance is a third party product. Lender will recover the commission from you. Therefore, compare other Term Plans before you go for it.
It is advisable. Since a HL is a huge liability it is always advised to cover it with an insurance.
It might sound like an extra expense, but in the event of a mishap insurance will cover the loan leaving the property debt free for your family.
In case it is not covered with insurance and after the mishap your family is unable to cope up with the EMI of the loan they might end up losing the property to the bank.


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