Home Loan Insurance Vs Term Insurance – Which one is better?

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  | Published: 24 June 2021 | Last Updated On: 12 July 2021

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Most of us strive to fulfill the dream of buying our own place. Whether it is an idea of you moving into a house of your dreams or investing in a property as a safety measure, a home is something everybody wants to invest in.

There are various factors to consider before buying a house. And making the right choice of home loan insurance is a critical and challenging task to do. With the growing real estate costs, a home loan is a basic need for buying a house nowadays. Of course, we keep in mind various factors like the interest rates, the payback schedule, etc., while taking a home loan but we often neglect the fact that we need an insurance policy.

Most financial institutions that offer loans also offer life insurance policies to help cover the loan in case of an emergency. These life insurance plans aid your family members to repay the home loan if you are no more there to provide. 

People consider taking mainly two kinds of protection plans to deal with eventualities. 

  1. Home Loan Protection Plan
  2. Term Insurance Plan

To make the right choice, all the applicants must be aware of these protection plans’ benefits. But, unfortunately, most loan providers push applicants to take home loan protection plans for different reasons like the added benefits of commission, easy loan repayment schedule, etc.

However, it is on you to evaluate which one stands better for you. So let us go ahead and learn how home loan insurance is different from term insurance and which one to choose.

What is Home Loan Insurance?

Home loan insurance provides you the coverage against the loan repayment risk in case of your sudden disability or demise. Some insurance providers even offer you loan repayment cover if you lose your job temporarily. 

Home loan insurance helps you support your family in your absence and keep them protected from the burden of debt liability.

The insurers offer a single payment plan for home loan protection. They add a single premium amount to your loan amount increasing your home loan Equated Monthly Installment (EMI). Sometimes, they seek a separate insurance premium payment until the loan gets approved.

Home Loan Insurance vs. Term Insurance

Now that you know how Home Loan Insurance works, here are a few pointers to help you understand better how term insurance in the UAE is different from Home Loan Insurance.

1.Life Cover

Term Insurance plans offer a specified life protection cover payable in case of the sudden demise of the insured person. The death benefit of term insurance plan helps your family members pay the loan and acts as financial aid for them. Most term insurance in the UAE also provide maturity benefits for the policyholders who outlive the plan.

The home loan insurance plans, on the other hand, have complex functioning and cover only the loan amount that the bank has sanctioned. So the amount of the cover declines as the loan gets repaid.

2.Premium Amount

The premium cost is one of the significant factors you need to consider when choosing a home loan protection or a term insurance plan. Home loan insurance plans require onetime payment at the time when the loan gets approved. However, Term Insurance, on the other hand, offers scheduled payments of lower values. 

The amount of home loan insurance is higher when compared to the term insurance plan and gets added to the loan amount. Therefore, the term insurance plan is budget-friendly and more affordable for the applicants.

3.Cover Modifications

Term insurance plans allow you to increase the cover depending upon your financial responsibilities. However, you can’t modify the insurance cover for home loan insurance as you have already paid a single insurance premium amount. It means if you want to refinance the home loan and increase the repayment time, it will not extend the cover time. 

For example, if you have opted for the home loan for 20 years and want to increase it to 25 years, you can do that, but there will be no insurance cover for an additional five years

4. Add-ons

Term insurance plans allow policyholders to add different covers for terminal illnesses like cardiac issues, cancer, etc., at an affordable premium amount. However, on the other hand, home loan insurance charges a higher premium amount for including these add-ons to the policy.

5.Tax Benefits

Taking a home loan is one of the smart ways of saving tax. Home loan insurance offers high tax benefits as the amount gets added to the loan amount itself. The premium amount for term insurance also helps policyholders save tax. However, as the home loan premium gets paid in one go and the term insurance premium comes with EMI plans, the period of tax benefits may differ.

How Term Insurance is better than Home Loan Insurance?

Now that we all know, term insurance is a wiser investment against coverage and tax benefits. In addition, term insurance plans are easily affordable and come with the flexibility of including add-ons. The best part about term insurance in the UAE is that the insurance cover remains constant. 

Another good thing about the term insurance plans is that they allow you to easily shift your home loan from one lender to another without hassle. However, that is not the case with home loan insurance plans.

You may like this - How Term Insurance Helps Reduce Home Loan Risks

The Bottom Line

With all the facts mentioned in the article, we can conclude that term insurance plans are better than home loan insurance. Sometimes banks in the UAE offer term insurance plans proactively. The premium offered by the banks is relatively higher than that of standalone insurers. So make sure you check with multiple insurance providers before you purchase a term insurance plan for yourself.