When you buy a home, the price of the house is not the only expense that you need to worry about. There are so many other charges involved, and one of the most important (but most underrated) is home loan insurance. But what exactly is home loan insurance, and why should you be considering it? In this blog post, we’ll break it down in simple terms and explain why home loan insurance could be a smart move for anyone taking out a mortgage.
What Is Home Loan Insurance?
Home loan insurance is an insurance policy that is created to safeguard the borrower (you) and the lender (most often a bank or financial institution) in case something unexpected occurs. It’s an insurance safety net for both of them, ensuring that the mortgage is paid off even if the borrower is no longer able to make payments because of unforeseen events such as death, disability, or loss of job.
In most cases, home loan insurance covers the repayment of the loan in case the borrower is no longer able to do so. This could be due to such factors as:
Death: If the borrower dies before he/she has repaid the mortgage, the insurance company will pay out the remaining loan amount.
Disability: If the borrower is disabled and unable to work, the insurance will cover loan repayments during their recovery.
Critical Illness: If the borrower becomes ill with a life-threatening disease, home loan insurance will be able to cover payment while they are being treated and recovering.
Loss of Job: Some policies cover loan repayments in the case of forced unemployment, allowing stability as you secure new employment.
While a typical homeowner’s insurance policy covers you to fix or rebuild your home if it is destroyed, home loan insurance does not care about your dwelling. It covers your house from being repossessed if you are unable to make payments since you have experienced drastic personal failures.
Why You Should Take Home Loan Insurance
Mortgaging is a big commitment. When you borrow to buy a home, you pledge to repay it over decades. Even if you’re confident you can repay the loan, circumstances do not always work out. Home loan insurance can provide peace of mind knowing your family and home are protected, even if the worst happens.
Here are some of the key reasons why home loan insurance is a choice you need to take very seriously:
Protection of Your Family’s Finances: A home loan tends to be one of the biggest loans someone will ever make. If you die, your family may not be able to continue making mortgage payments, and as a result, face the possibility of foreclosure.
Prevents Debt from Becoming a Burden: Life has a way of surprising you with unforeseen challenges. Sudden disability, serious sickness, or even job loss can usher in a period when it is not feasible to pay back your home loan. Without home loan insurance, you could be placed in a significant financial predicament. The insurance cover will simplify this by settling the loan during difficult times.
More Than Life Insurance: Everybody knows about life insurance, but home loan insurance provides a unique benefit in the event of a mortgage. You are healthy today, but something untoward may happen tomorrow. A normal life insurance policy may or may not repay the specific risk of losing your home due to the failure to pay back the loan. That is why buying home loan insurance is especially meant to protect your house in the event of the worst occurring.
Job Loss Protection: For those that have their mortgage payment for a month contingent upon the receipt of a paycheck, losing one could be a very worrying experience. While you’ll likely be entitled to unemployment insurance, it’ll most likely never pay out fully enough to equal your monthly mortgage. Home loan policies often offer an add-on in the form of job loss coverage that would guarantee a means of support economically until new work is obtained.
Low Premiums: As you may suspect, home loan insurance can be very cheap. Home loan insurance premiums are usually cheap, especially when compared to other forms of insurance, like term life insurance. It will vary based on the amount of the loan, your age, and other factors, but it is normally very cheap.
Peace of Mind for the Home Purchaser: Perhaps the greatest reason people choose to buy home loan insurance is the peace of mind it affords. Having the assurance that your family or loved ones won’t be stuck with a burdensome debt after your untimely death can go a long way toward happiness and peace of mind. It’s one less concern to have while making arrangements for your future.
Home Loan Insurance and Term Life Insurance
While home loan insurance is a type of cover that is specific to the loss of a house in case mortgage payments have not been made, term policy offers broader cover for the financial liabilities.
On the other hand, home loan insurance is only interested in the mortgage, and it ensures the debt is repaid in the event of the borrower’s death or other insurmountable barriers. Both types of insurance have their own merits, and the majority of people find it beneficial to have both. By purchasing both term life insurance and home loan insurance, you provide a complete financial safeguard for your property and family.
How to Buy Home Loan Insurance
You can easily buy home loan insurance. You generally receive it when you buy a mortgage through your lender, or you can buy it directly from an insurance company. Banks and financial institutions have their own policies, but you should compare what they are offering and shop around to acquire the best cover at the cheapest price.
Before purchasing, make sure to carefully read the policy details, including the coverage amount, premium costs, and any exclusions. Some policies may have waiting periods or restrictions that could affect your claim, so it’s essential to understand the terms fully.
Conclusion
Home loan insurance may not be the highlight of buying a house, but it’s something crucial in guarding your future finance. The relief you get in having your house and family guarded from unforeseen things is irreplaceable. Even if you buy term life insurance or home loan insurance, or both, knowing that there is some provision made for the unpredictable is a logical and smart thing to do.
Borrowing to buy a house is a large investment, and home loan cover is there to ensure that your family and you don’t have to live off the streets should something untimely occur. Don’t procrastinate – save yourself now.
