Home loan protection plan or term cover: How borrowers should choose
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar explained that a protection plan's premium can be added to the loan but then attracts interest for the full tenure, while a term plan stays in place if the loan is prepaid or moved. He suggested pairing the two.
What Abhishek Kumar said
Why do home loan protection plans look convenient to borrowers?
In my view, the main appeal of a home loan protection plan is convenience. The single premium can usually be added to the loan itself, so you do not have to find that money upfront. Because these are group covers, the medical checks tend to be lighter than for a standalone life policy, which makes it easier to get covered.
What is the hidden cost of adding the protection plan's premium to my home loan?
Once the premium is folded into the loan, it becomes part of your principal. That means you keep paying interest on the insurance premium itself, not just on the house, for as long as the loan runs. I suggest counting that interest as part of what the cover really costs before you choose this route.
Why might a term plan suit a borrower who expects to prepay or switch the loan?
A term plan is linked to you, not to the loan. If you prepay the home loan early or move it to a different lender, your term cover carries on as before. The trade-off is that you cannot finance its premium through the loan; you have to pay it yourself, separately, each time it falls due.
Should I choose between a protection plan and a term plan, or use both?
You do not always have to pick just one. One approach worth considering is to let a home loan protection plan take care of the home loan, and to buy a term plan that covers your family's other liabilities and their financial goals. That way the loan is handled and the family is not left with only a cleared mortgage.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on debt and loans
After RBI barred lenders from forcing borrowers to buy bundled third-party products, the article compares two ways to cover a home loan: a home loan protection plan and a term insurance plan. It sets out the pros and cons of each, and suggests matching the policy tenure to the loan and resisting pressure to buy through the lender.
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Home loan protection plan or term cover: How borrowers should choose