A glance: After buying a home by taking a home loan, you will also have to arrange security for the repayment of this loan.
Almost everyone in the country dreams of their home. This is a big financial decision. So you should make a decision only after doing your homework. If you want to buy a house with a loan, you have to consider its interest rate, processing fees, duration.
After buying a house with a home loan, you also have to arrange security to repay this loan.
1.Cost of Premium
The most important factor in deciding whether you should go for a term plan or HLPP for home loan security is the cost of premium. While in term plans you have to pay premiums at regular intervals, in HLPP you have to pay a lump sum amount as premium.
Because of this you have to pay higher premium in HLPP. Generally, a term plan of Rs 1 crore for a young person is available for a premium of Rs 8000 to 15000, whereas for a cover of Rs 1 crore in HLPP, you may have to pay up to Rs 50,000.
2. Life Cover
On the death of the person taking a term plan, his family gets the sum insured. In this situation, the family can repay the home loan with this amount. They can also meet the rest of their financial needs. Many such term plans are now available in the market, in which even after the end of the term of the insurance, if the person buying the insurance survives, then he gets some benefits.
In comparison, the functioning of the HLPP is complex. It covers the amount of the home loan. In this situation, the company selling the HLPP pays only the home loan amount to the bank in case the person is no more. Once the home loan amount is repaid, the liability of the company ceases.
3.Cover Change
Home loan refinancing or changing its tenure is a common practice these days. If you take a term plan, then the cover amount can be changed according to the change in your financial liability. Once the premium amount is paid in HLPP, there is little scope for any change.
If you increase the tenure of the home loan from 20 to 25 years, then the validity of your HLPP will remain for 20 years. Similarly, even if you reduce the tenure of the home loan, you will not get any relief in your premium amount in HLPP.
4. Difference in Premium
When you take an HLPP, your premium amount is also added to the home loan amount. The monthly installment (EMI) of the home loan is made accordingly. This means that in HLPP, you also pay interest for the insurance of the home loan.
Because of this, the amount paid by you as premium increases.
Let’s understand it with an example:
Both Ashok and Dinesh took a home loan. Ashok took a term plan to protect the home loan whose premium is Rs 7000 per annum. Dinesh took HLPP whose premium is Rs.50,000.
After paying the premium of the term plan, Ashok invested the remaining amount of Rs 43,000 in an equity mutual fund. If we assume the average return of 14%, then in a period of 20 years, this investment of Ashok will become Rs 5,00,000.
5. Tax Benefits
Home loan is indeed a great option to save income tax. The tax benefit under section 80C of the Income Tax Act can be availed on the principal portion of the Home Loan Monthly Installment (EMI). In HLPP, since the premium amount is also included in the loan itself, hence no separate tax benefit can be taken on it.
In a term plan, you can get separate tax benefits on the annual premium.
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