The burning question among home buyers is whether they should buy home insurance or home-loan insurance. Often, they use these insurance terms interchangeably, thinking that the two terms are one and the same. However, you cannot use one term in the place of the other as both are fundamentally worlds apart and are not cut from a same cloth.
While your home insurance offers protection against losses arising out of structural damages caused to your house and its contents, a home-loan insurance offers protection to a you (or your family) from the home-loan burden or of Equated Monthly Instalment (EMI) payments. Let’s get down to the bricks and mortar and look under the floorboards.
Home insurance
The Insurance Regulatory and Development Authority of India (IRDAI) has made it mandatory for all the general insurers at length and breadth of the country to offer a standard home insurance policy called ‘Bharat Griha Raksha’, since April 1, 2021. The main objective of the policy is to offer protection against losses occurring due to structural damages caused to the property and its contents thereof (inside the house.) Say, for instance, if one’s house and/or its contents are severely damaged or destructed due to heavy downpour, flood, fire accident, earthquake, volcano or other such accident or natural calamities, home insurance comes as a saviour.
Most of the insurance companies offer three types of coverage under the home-insurance policy. First, coverage to the building structure; two, contents at home and the third one is an optional cover. By paying an additional premium cost, you can add the protection offered by an optional cover in your policy. Valuables such as jewellery, silverware, paintings, electronic items and gadgets, furniture and fittings can all be added to the optional cover, based on agreed value. Moreover, you can also include a personal accident cover in the optional cover of your home insurance policy. That is, at times, a structural damage to the building might lead to the death of the insurance policy holder or his/her spouse. A personal accident cover will provide extra coverage under these circumstances.
In India, through the standard home insurance policy, most of the insurance companies provides coverage for the cost of repairs of the building structure, fees collected by an architect or a surveyor, amount paid to clear debris, loss of rent as the building is damaged, rent for alternative accommodation and the cost to construct a new structure. However, some insurance companies might ask you to pay an additional premium amount by way of offering a few additional values through add-on covers, thereby making the policy more expensive. Therefore, buyers of the home-insurance policies must thoroughly observe the inclusions and exclusions of the standard policy, add-on cover inclusions, cost of premium etc., before buying the policy.
Home-loan insurance
If you have not paid your EMIs to the home-loan-providers (banks or other financial institutions) on time, due to an untoward incident or an uncertainty, a home-loan insurance policy would come in handy and helps you or your family from losing the ownership title of your house. In short, when a home-loan borrower defaulted his/her EMI payments due to death or any other adversity, home-loan insurance companies would pay the dues to the banks.
Let’s take a real-life example. Say, Kamesh had taken a loan for ₹60 lakh from Monty Bank with the EMIs spread around 30 years. If during the tenure of the loan, if Kamesh died in an accident, the pending loan amount to Monty Bank would be paid by the insurance company. Therefore, Kamesh’s family members, including his widowed wife, would not be burdened by the bank to pay the EMIs for the remaining tenure.
The point to be noted here is that the terms and conditions are not same across all the insurance companies. That is, not all home-loan insurance companies offer similar coverage and the conditions might vary. Some insurers might offer only death coverage, while some offer critical illness coverage, accident coverage, loss of job (loss of earning potential) coverage etc. Therefore, it becomes crucial to read the policy document completely before signing and paying the premium cost.
Conditions of purchase
If you own a property, that is, you have a property registered in your name, you can purchase a home insurance policy. In short, you should be the landlord of the property. If you do not own any property and you are only a tenant residing at someone else’s house, you cannot buy a home insurance policy that offers protection to the structure of a building. The reason is simple – according to insurance parlance, you have no insurable interest. That is, you have no own house, so no policy. However, you can purchase an insurance policy that offers protection for your contents/valuables stored inside your rented house.
With regard to home-loan insurance, you cannot purchase a loan-insurance policy if you do not have any home loan at all in the first place. This is because, the very idea of offering a home-loan insurance policy is to protect you from the outstanding home-loan amount at the time of adversity.
Cost of premium
The premium cost payable for purchasing a home-loan insurance policy would always be on the higher side when compared to the standard home insurance policy.
While your home-loan insurance policy helps you in bringing down your down-payment commitment at the time of buying a property (because your insurer ‘guarantees’ repayment of the loan at the time of any untoward/adverse event), your standard home insurance policy does not have any impact on the down payment commitment. Home insurance policy offers zero impact on down payment.
Which one to buy?
Both the IRDAI and India’s Central Bank ‘Reserve Bank of India’ have not made it mandatory to purchase either home insurance policy or home-loan insurance policy. However, it is always better for home buyers to buy both the insurance policies (if above conditions are met) as both are beneficial in its own ways, provided claims are made as per the terms and conditions of the policy.