Buying their own home is a dream for most of the people on earth. Out of the three basic necessities Food, Clothing and Shelter (Roti, Kapada Aur Makaan as we knew it), fortunately, two can be bought without a loan.
But buying a home without a loan is another dream. With so many home finance companies and banks offering home loans, most of the new homes in India are bought with the help of the home loan.
“A mortgage casts a shadow on the sunniest field.” Robert G. Ingersoll.
Buying your own house with home loan certainly will shadow your happiness. But since there is no choice, a matching Life Insurance policy can somewhat curtail the shadow.
Life Insurance Policy will not protect your life but it can certainly protect your family from the financial risks. This is more relevant when you are in debt. A home loan is perhaps the biggest personal debt for many.
Reasons Why Life Insurance is necessary when you avail a home loan:
Home Loan is A Loan:
A home loan is a loan. The bank or the lender will mortgage your home. They have the power to get possession of your home if you fail to repay the loan.
Which means your home is not yours completely. The lender is also a stakeholder. The original flat documents remain with the lender. Even your share certificate will have a stamp of “Mortgaged to ____”
Your name is there on the nameplate, share certificate, and you have the possession. That’s it. This home will become 100% yours when you repay your home loan completely.
Therefore repaying home loans regularly is very important. Any short-term casual approach in repayment of your home loan can trigger long-term irregularity. In such a case, your asset i.e. home is at stake.
Your home is perhaps the biggest assets in your personal balance sheet. Protect your interest carefully.
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Debt Vs Home Value:
Your home is not only the biggest assets in your balance sheet, but it is also one of the fastest-growing assets. In India where the property market is usually appreciating, your home could be your best asset as a retirement planning investment.
There are cases in Mumbai where the property in 1998 worth Rs. 12 Lakhs is now priced at Rs.125 Lakhs.
Your home is so precious and can serve many purposes with this single investment in your financial journey.
While usually, your home value will increase as the years go by, your home loan will reduce as the years go by. Your regular repayment over the years will bring down your outstanding loan.
Imagine a scenario where there is very less loan outstanding and the earning member dies. If the family members can’t repay the balance loan, the bank will auction the property to recover the outstanding loan. Excess of the sales proceeds will come to the family members but that is only after the home is sold.
Your family members will have to find a new home and resettle. This is not only about resettlement but it has cost implications. They will have to pay capital Gain if any, stamp duty, registration charges, etc. of the new flat.
This can cause mental, physical, emotional and financial chaos for the family members. Your spouse who has all the happy memories with the home will have to pass through this disturbance.
For a depreciation liabilities ( i.e. home loan) you would lose appreciating assets (i.e. home).
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What Can Be Done?
“Whatever excuses you may have for not buying life insurance now will only sound ridiculous to your widow.” Unknown Author.
Yes, there is no excuse for not having a life insurance policy matching with your home loan amount.
The day you avail the home loan, make sure you also have a life insurance policy for the sum assured to match your home loan amount.
It could be pure risk term policy or an endowment policy.
What you need to make sure of is that in case of the death of the borrower, life insurance policy amount from this specific policy shall take care of your bank loan repayment obligation.
On borrower’s sudden death, the policy amount takes care of your home loan obligations. Your home is free from all the mortgages. Your family has one less thing to worry about.
The mental peace this Insurance Policy will bring will double your joy immediately when you invest in the policy.
Isn’t it a smart decision you can make?
With this smart decision, you not only cover your home loan repayment risk but you also protect the costliest asset for your family.
“He that dies pays all debts.” William Shakespeare.
Only adequate Life Insurance Policies can make Shakespeare right. Honour all your commitments when you are alive. Plan to keep up that honour when you are dead.
You may also like to read: 5 Point Action Plan to Protect Your Wealth Before You Die