Difference between Home Insurance & Home Loan Insurance - Home Loan Stories - Kotak Bank

30 AUGUST, 2019

There comes a memorable moment in your life when you finally buy your first house. Either the feeling of having their own place in the world or making an investment in the real estate market, everyone has solid reasons to purchase a property. Buyers need to take care of various aspects of the home buying process, and the most of crucial of them is getting a home loan. Due to the ever-increasing rates of the properties, getting a home loan has become a requirement in these days.

People who are availing a home loan pay attention to different aspects of it, such as interest rates and tenure period. However, one thing that often gets disregarded is home loan insurance. An insurance policy is a way to assure safety during or after misfortunate events. That is why getting insurance for home as well as a home loan holds vital importance in today’s world.
To understand the difference between home insurance and home loan insurance, one needs to remember that both of them provide coverage for different risks.

Home insurance   

There are various types of natural and man-made incidents that can damage someone’s house, such as floods, arsons or robberies. Home insurance is a type of insurance policy that covers the cost of repair caused due to such damages to houses as well as materials inside it.

Under the home insurance, the insured can avoid the financial loss that arises due to the destruction of their property. The home insurance is also known as property insurance, which can be of two main types,  

  • Structure or building insurance:

This type provides a cover to repair damage against the structure of the house in case of  natural calamities.

  • Content Insurance:

This type provides a cover for the loss of household personal possessions and furnishings such as furniture, TV, and other electrical appliances inside the house.

Home loan insurance
A home loan insurance takes care of the monthly instalments of loan when the borrower is incapable of paying them. This is a type of insurance that covers the risk of repaying the remaining home loan amount after the untimely demise of the borrower. The insurers cover the outstanding loan amount, and the nominees remain free from financial burden.
Currently, the rate of premature deaths due to road accidents or critical illness is considerably high. Therefore, financial institutions advise borrowers to purchase home loan insurance after completing home loan documentation. However, buying a home loan insurance is not compulsory while applying for a home loan. The borrowers can also opt for the additional benefits and riders for critical illnesses or unemployment on their home loan insurance policy.  

One can choose the home loan insurance in the following ways,

  • Level cover plan: In this type, the coverage remains unchanged for the insured throughout the entire tenure of the home loan.
  • Hybrid cover plan: In this case, the coverage does not change for a certain period. But it starts decreasing as the outstanding loan balance decreases with tenure.
  • Reducing cover plan: Here, coverage and remaining loan, both reduce along with tenure.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.