Everything You Need to Know About Home Loan Insurance and Coverage

To understand what is a home loan insurance and how it works we should focus on learning about what is a home loan first. By doing so, we'll comprehend home loan insurance in a better way.

So, shall we begin?

What is a home loan?

A home loan is a type of loan used to finance the purchase of a house or property. The property serves as collateral for the loan, and the borrower has to make regular payments to the lender until the loan is paid.

It can be borrowed from banks, credit unions, and mortgage companies. They typically have a fixed or adjustable interest rate, and the terms and conditions of the loan can vary depending on the lender and the borrower's creditworthiness.

The borrower, who is the person taking out the loan, require making regular payments to the lender, which includes interest and a portion of the principal, until the loan is fully paid off.

When a borrower applies for a home loan, the lender will typically consider factors such as the borrower's credit score, income, and debt-to-income ratio to determine their ability to repay the loan.

The lender will also consider the value of the property being purchased, as well as the size of the down payment and the terms of the loan.

Home loans are a long-term commitment, with terms that can range from 10 to 30 years.

It's important for borrowers to carefully consider their ability to make the monthly payments, as well as the total cost of the loan over the life of the loan, before taking out a home loan.

Home Loan Interest Rates

" The interest rate is the percentage at which the lender charges an additional fee per year on lent money. The rates generally are fixed but may be adjustable, depending on the lender. "

A fixed interest rate remains the same throughout the life of the loan, while an adjustable rate can change periodically, typically based on a benchmark interest rate.

The interest rate on a home loan will vary depending on many factors, including the lender, the borrower's creditworthiness, and the current market conditions.

It can vary from lender to lender and also can change over time. Generally, a higher credit score will typically result in a lower interest rate.

Home loan insurance rates vary from bank to bank or lender to lender. In India, home loan interest rates range between 8 percent per annum and 15 percent per annum.

For example, HDFC Home Loan interest rate starts at as low as 8.65% per year.

Now, I'm quite confident that you got the basic idea of what is home loan and the interest rate on home loans.

Let's back to our main topic- home loan insurance.

What is a home/house loan insurance protection plan?

Home loan insurance protection plan, also known as mortgage insurance, is a type of insurance that protects the lender against the risk of a borrower defaulting on their home loan. It is typically required by lenders when a borrower makes a down payment of less than 20% of the purchase price of a home.

" In case of default or foreclosure, the insurance company will pay the lender a percentage of the outstanding loan balance."

This type of insurance is designed to protect the lender from financial loss if the borrower is unable to make their mortgage payments and defaults on the loan.

"It is usually a requirement to obtain the loan and it can be cancelled once the loan-to-value ratio of the mortgage reaches 78%."

Home loan insurance is designed to protect the lender in case the borrower is unable to make their mortgage payments and defaults on the loan.

Without home loan insurance, lenders would be less likely to approve loans for borrowers with a low down payment or high loan-to-value ratio, as they would be taking on more risk.

" Home loan insurance is typically required by lenders when a borrower's down payment is less than 20% of the purchase price of the home."

This is because borrowers with a smaller down payment have less equity in the property and are therefore considered a higher risk to the lender.

When a borrower is required to pay for home loan insurance, they can choose to pay it as a one-time upfront premium or as a monthly premium that is added to their mortgage payment.

The cost of the insurance will depend on factors such as the loan amount, the size of the down payment, and the creditworthiness of the borrower.

Importance/scope of home loan insurance?

Home loan insurance, also known as mortgage insurance, is an important tool that helps lenders mitigate the risk of a borrower defaulting on their home loan. It is typically required by lenders when a borrower makes a down payment of less than 20% of the purchase price of a home.

The importance of home loan insurance can be seen in the following ways:

• It makes homeownership more accessible:

Without home loan insurance, lenders would be less likely to approve loans for borrowers with a low down payment or high loan-to-value ratio, as they would be taking on more risk. By requiring home loan insurance, lenders can approve more loans for borrowers who might not otherwise qualify, making homeownership more accessible to a wider range of people.

• It protects the lender:

If a borrower defaults on their loan, home loan insurance will pay the lender a percentage of the outstanding loan balance. This helps to protect the lender from financial loss and allows them to offer loans to borrowers with a lower down payment or higher loan-to-value ratio.

• It protects the borrower:

Home loan insurance also provides some protection for the borrower. If the borrower dies, becomes disabled, or loses their job, some policies may provide coverage to help make mortgage payments.

• It can be canceled:

Once the loan-to-value ratio of the mortgage reaches 78%, the home loan insurance can be canceled. This means that the borrower will not have to pay the mortgage insurance until the loan is fully paid off.

" Meanwhile, home loan insurance plays an important role in making homeownership more accessible, protects both the lender and the borrower in case of default, and can be cancelled once the loan-to-value ratio of the mortgage reaches 78%."

Home Loan Insurance Benefits

Home loan or mortgage insurance offers several benefits for both borrowers and lenders:

• It makes homeownership more accessible:

Without home loan insurance, lenders would be less likely to approve loans for borrowers with a low down payment or high loan-to-value ratio, as they would be taking on more risk. By requiring home loan insurance, lenders may approve more loans for borrowers who might not otherwise qualify, making homeownership more accessible to a wider range of people.

• Protection for the lender:

In case a borrower defaults on their loan, home loan insurance will pay the lender a percentage of the outstanding loan balance. This helps to protect the lender from financial loss and allows them to offer loans to borrowers with a lower down payment or higher loan-to-value ratio.

• Protection for the borrower:

Home loan insurance also provides some protection for the borrower. If the borrower dies, becomes disabled, or loses their job, some policies may provide coverage to help make mortgage payments.

• Tax deductions:

Mortgage insurance premiums may be tax-deductible, which can lower the overall cost of homeownership for the borrower.

Who should buy a home loan insurance?

Home loan insurance, also known as mortgage protection insurance, is typically recommended for individuals who have a mortgage on their home and want to protect their loved ones from shouldering the financial burden in the event of the borrower's death, disability, or job loss.

" This type of insurance is generally recommended for individuals who are the primary breadwinners in their household and have dependents who rely on their income. "

However, it's a personal decision, it's best to consult with a financial advisor to determine if home loan insurance is right for you.

Home Loan Insurance Eligibility Criteria

The eligibility for home loan insurance, also known as mortgage insurance, varies depending on the lender and the type of loan. However, in general, home loan insurance is typically required by lenders when a borrower makes a down payment of less than 20% of the purchase price of a home.

For private mortgage insurance (PMI), borrowers usually need to meet the following eligibility criteria:

• A credit score of at least 620
• A stable income and employment history
• A debt-to-income ratio that falls within the lender's guidelines
• A clean credit history with no recent bankruptcies or foreclosures

For government mortgage insurance, the eligibility criteria may vary depending on the program. For example, the Federal Housing Administration (FHA) has more lenient guidelines and may approve loans for borrowers with lower credit scores and higher debt-to-income ratios.

The eligibility for home loan insurance depends on the lender and the type of loan, but usually, it's required for borrowers with a down payment of less than 20% of the purchase price of a home, credit score of at least 620, a stable income and employment history, a debt-to-income ratio that falls within the lender's guidelines, and a clean credit history with no recent bankruptcies or foreclosures.

Why you should buy a home loan insurance?
-Top reasons to buy

There are several reasons why you should buy a home loan insurance:

1. Protection for loved ones:

In the event of the borrower's death, disability, or job loss, the insurance can help pay off the outstanding mortgage balance, which can provide financial relief for the borrower's loved ones.

2. Peace of mind:

Having a home loan insurance can provide peace of mind knowing that the mortgage will be taken care of in the event of unexpected life events.

3. Helps to keep the home:

A home loan insurance can help ensure that the borrower's loved ones will be able to keep the home, rather than having to sell it to pay off the mortgage.

4. The lender may require it:

Some lenders such as banks, government financial bodies, and non-banking finance corporations (NBFCs), may require home loan insurance as a condition of the mortgage.

Home Loan Insurance In Case Of Death

In case of death of the borrower, the insurance company is liable to pay the rest of the premiums to the lender on behalf of you. Majority of the banks consider to terminate the premiums charging from the victim family in case of death.

However, there are certain rules and conditions that you should fulfil to get the benefits of loan termination.

1. The person who died was the only breadwinner of the family
2. There is no other source of income or no earning member in the family

Is a home/house loan insurance mandatory?

No. It is not mandatory in India for now but it's highly recommended and depends on the type of loan and the lender's requirements. For example, with a conventional loan, mortgage insurance is typically required if the down payment is less than 20%.

Additionally, some lenders may require insurance even if it is not legally required. It is best to check with the lender to determine if mortgage insurance is required for the specific loan you are applying for.

Which is the best home loan insurance policy in India?

There are various home loan insurance policies available in India, offered by different insurance companies. Some of the top and best providers of home loan insurance in India include:

• LIC Housing Finance Limited: LIC Housing Finance Home Loan Protection Plan is a home loan insurance policy offered by LIC Housing Finance Limited in India. The policy provides coverage for the outstanding loan amount in case of the borrower's death or disability. This can help to alleviate the financial burden on the borrower's family or estate in the event of an unfortunate incident.
• SBI: SBI Home Loan Protection Plan is a home loan insurance policy offered by the State Bank of India (SBI) in India. The policy provides coverage for the outstanding loan amount in case of the borrower's death, disability, or critical illness. It is designed to help alleviate the financial burden on the borrower's family or estate in the event of an unfortunate incident, by paying off the remaining loan balance.


• ICICI Prudential: ICICI Prudential Home Loan Protection Plan is a home loan insurance policy offered by ICICI Prudential in India with features like:
  • Coverage for the outstanding loan amount in case of the borrower's death or disability
  • Option to cover the borrower's spouse as well
  • Premiums can be paid along with the home loan EMI
  • Premiums are calculated based on the outstanding loan amount, age of the borrower and the term of the loan
  • The policy provides cover for the entire loan tenure
  • Provides the option to increase the sum insured during the policy term


• HDFC: HDFC offers the HDFC Home Loan Protection Plan, which offers complete security for the outstanding loan amount in the event of the borrower's death or permanent disability. It does not require a medical examination for enrollment.
• Bajaj Allianz: They offer the Bajaj Allianz Home Loan Protection Plan, which provides coverage for the outstanding loan amount in case of the borrower's death, disability or critical illness.The policy does not cover any other risks such as critical illness or job loss, and it only covers the outstanding loan amount, not the entire property value.

Home loan insurance premium calculator

To calculate the monthly premiums and total cost required for home loan insurance you will require the following information.

1. Loan amount: The total amount of the mortgage loan
2. Interest rate: The annual interest rate on the loan
3. Loan term: The number of years the loan will be in effect
4. Insurance premium rate: The rate at which the insurance premium will be charged, usually a percentage of the loan amount
5. Coverage term: The length of time the coverage will be in effect, usually the same as the loan term
6. Annual income: The borrower's (your) annual income
7. Age: The borrower's age. How old are you?
8. Health: Your health history to ensure that you do not have any disease that can cause death before paying off the premiums.
9. Occupation: Your current position on the job/profession or in the business
10. Family history: Health history of your family members

Once we've all information handy, calculate home loan insurance EMIs.

How to calculate home loan insurance premiums/EMIs?

Let's take an example to calculate the monthly EMIs for house loan insurance.

Example calculation:

Let's say a borrower wants to purchase a home for $250,000 with a 30-year fixed-rate mortgage at a 4% interest rate. The insurance premium rate is 0.5% of the loan amount with the coverage term is 30 years.

1. Monthly mortgage payment: The borrower would pay $1,193.54 per month for the mortgage (calculated using a mortgage calculator)
2. Insurance premium: The borrower would pay an additional $1,250 per year for the insurance premium ($250,000 x 0.5%)
3. Total cost: The total cost of the mortgage with insurance would be $43,609.60 more than the mortgage alone.