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How Term Insurance Helps Reduce Home Loan Risks

By Pardeep Garg
  | Published: 25 June 2021

Buy a term plan and secure your family

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AED 100,000 cover starting at just AED 7/month

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Buying our own home is one of the biggest financial goals that we set for ourselves. However, it takes a lot of planning to deal with such a significant expenditure while not affecting other financial needs.

The risk of non-payment of home loan arises due to two primary reasons-

  • The loss of borrower's earnings due to some critical illness or disability
  • The borrower's demise

Both the reasons leave dependants with a massive burden of loan EMIs. And due to the failure of loan repayment, the dependants may need to give up their assets to the lender.

Term Insurance Plans can provide you with coverage against this risk of non-payment and help dependants deal with their finances even if the borrower is no more able to repay the debts.

Let us go ahead and learn more about how term insurance can help your family repay the insured loans and debts.

How Term Insurance Helps You Cover Your Home Loan Risks

Term insurance plan can help your family members in multiple unforeseen events. These plans are affordable and offer a large sum assured with a lower premium amount. If the borrower dies, the dependants remain safe with the term plan cover and use it to repay their home loan.

Although the borrowers get these benefits in home loan insurance, term insurance acts as financial aid. Unlike home loan insurance, the coverage amount in term insurance doesn’t reduce as the loan gets repaid.

While buying the term insurance plan, make sure the duration of insurance is equal to or greater than the loan tenure. The best term insurance in the UAE allows you to take the base cover and include multiple add-on benefits by paying an additional premium.

If the borrower suffers from some critical illness like stroke, cancer, or organ failure, the add-ons like Accident Benefit Rider and Critical Illness Rider shield dependants by getting lump sum benefits to help make the loan repayment.

Reasons for Buying Term Insurance Over Home Loan Insurance

Here are the primary reasons why you must buy term insurance over home loan insurance.

1. Affordable

Home Loan providers in the UAE mostly insist the applicants take home loan insurance for protection. However, you don't need to take a home loan insurance plan. Instead, you can take the term insurance with maximized benefits that can be far more beneficial when compared to a home loan insurance plan. 

You can apply for term insurance in the UAE at affordable prices and lower insurance rates. Moreover, the policyholders can apply for the insurance online to avail an extended range of benefits. 

2.Flexible

Term Insurance Plans are easily affordable when compared to home loan insurance. With these plans, the policyholders can quickly transfer their home loan cover from the current lender to the other lender. The best part about term insurance plans is that the policyholders can still avail of the life insurance cover included in the insurance plan even after completing the loan repayment. They need to keep on paying the extra premium instalments for the same.

3.Fixed Benefits

Term Insurance plans for home loan protection offer full benefits no matter at what time the nominee has made a claim. The nominee can use the claim amount to pay off the debts and deal with other finances based on their needs.

With a term insurance in the UAE, the nominee can also address home loan amount and other financial needs by using the balanced amount in case of the borrower's sudden demise. The best part is that the sum assured remains content and provides complete flexibility. 

On the other hand, if the borrower has opted for home loan insurance, the sum assured gets reduced as the amount of loan gets repaid. And when the time comes, the nominee receives only the outstanding loan amount, and no balance remains after paying off the home loan. 

You may like this - Home Loan Insurance Vs Term Insurance – Which one is better?

The Bottom Line

Most of the time, the home loan lenders offer applicants to buy a term insurance plan. However, they might offer a higher premium because the banks purchase term insurance plans from the insurer on behalf of the policyholders. The commission amount is also included in the insurance premium.

Ensure you directly get in touch with the insurance provider, get the same plan at a lower premium and reduce the risk of home loan non-repayment.