Planning a Home Loan? Here’s Why Term Cover Should Be Your Next Step

When a home loan isn't repaid on time, the impact doesn’t stop at late fees or credit scores. If the borrower is no longer around, the entire responsibility can fall on the family, often at a time when they’re least prepared to handle it. It’s not just about death either. Even a major illness or accident that affects your ability to earn can disrupt repayments and leave your family struggling. While a home loan helps you secure a house, it also brings a long-term commitment that needs protection. That’s where term insurance comes in. In this blog, we’ll look at why adding a term cover alongside your home loan isn’t just a good idea but a step that can protect your family from future financial strain.

Why should you get a term plan to cover home loan risks?

A home loan gives you ownership, but a term plan gives your family the financial strength to hold onto it when life takes an unexpected turn.

• Takes the burden off your family

If something happens to you, a term plan ensures your family isn’t left struggling with EMIs or the fear of losing the home.

• Handles more than just death

Many term insurance plans come with add-on covers for disability and critical illness, helping you stay on track with repayments even if your income stops.

• Preserves your home as an asset

Without insurance, loan defaults could lead to repossession. A term cover helps your family clear dues and keep the home in their name.

• Gives peace of mind during the loan tenure

Knowing that your home loan is secured against uncertainties brings mental relief, especially for long-term loans stretching over 15–30 years.

• Flexible coverage options to suit your goals

Whether you want to cover only the loan or plan for broader family protection, term insurance gives you the flexibility to choose.

Term insurance options for protection against home loan risks

When it comes to protecting your home loan, term insurance can work in different ways based on how you want the coverage to support your financial goals. The two common options are:

A. Decreasing term plan 

This type of plan is designed to match the reducing balance of your home loan. The cover amount gradually goes down over the years, just like your loan does as you keep repaying it. It’s a practical option for those who want coverage strictly aligned with their loan dues. Since the sum assured lowers over time, the premiums are often more affordable.

Example:

Imagine someone takes a loan of Rs. 50 lakhs for 20 years. They opt for a decreasing term plan that starts with a sum assured of Rs. 50 lakhs and reduces every few years in line with their loan balance. If something happens during year 10 and the coverage has dropped to Rs. 30 lakhs by then, that amount can be used to close the remaining loan dues. The plan works well when the goal is only to protect the loan liability.

B. Regular term plan 

A regular term plan keeps the sum assured constant throughout the policy term. Unlike the decreasing version, this plan offers broader protection. It not only covers the home loan but can also support other financial needs of your family like living expenses, children's schooling or medical costs.

Example:

Say someone takes a home loan of Rs. 40 lakhs and chooses a term plan with a sum assured of Rs. 75 lakhs for 25 years. If something happens to them in year 8, their family receives the full Rs. 75 lakhs, which can be used to repay the loan and manage other ongoing expenses. It offers flexibility beyond just clearing the debt. 

Other option: Home Loan Protection Plan (HLPP)

An HLPP is another insurance option that is directly tied to your home loan. The sum assured under this plan is linked to your loan amount and usually declines as you pay off your EMIs. It only covers your loan liability and not any other financial needs. Also, it often gets bundled with your home loan when you sign up and the premium is paid upfront or included in your loan EMI.

This option works best if you’re looking purely for loan coverage without the need for additional protection. But keep in mind that it may not offer the same flexibility as a standalone term plan.

Summing up

A home loan may give you a property, but term insurance gives your family the power to hold on to it no matter what life brings. It covers the full loan amount, protects against income loss due to illness or disability and keeps your loved ones from facing the pressure of repayment during already difficult times. 

Whether you choose a regular or decreasing term plan, the right cover ensures financial continuity, preserves your home and gives you the peace of mind every borrower deserves. On top of that, you also get term insurance tax benefit. So, while your loan builds a home, your insurance quietly keeps it protected.