HLPP or Term Insurance: Which One to Buy If You Have a Home Loan

Buying a home is a huge commitment, but for many, it is their life’s goal. Owning a home offers you a sense of security; it is a place where you can spend the best days of your life with your loved ones. The biggest challenge you face when buying or building a new home is arranging for the funds. You can opt for a home loan and get financial assistance. However, this becomes a liability, which you have to carry for years.

What if an unfortunate incident leads to your absence? Imagine the kind of pressure your family will have to go through to keep the safest place they know! The good news is that this problem has an easy solution. You can purchase a Home Loan Protection Plan (HLPP) or a life insurance term plan, both of which can finance the home loan if you are not there. Read on to understand this better.

What is a Home Loan Protection Plan (HLPP)? 

An HLPP is an insurance policy that serves the purpose of covering your home loan if you cannot repay it due to certain an unforeseen event. The tenure of the insurance policy is equal to the duration of the home loan. The sum assured is equivalent to the outstanding home loan amount. As you continue to repay the loan, the HLPP’s sum assured reduces accordingly.    

What is a term life insurance policy?

A term plan is a form of life insurance policy that offers financial cover to your nominees in case of an untoward incident. If the nominees claim the life cover, your insurance company pays a lump sum. The nominees can utilize the money for any purpose, including the repayment of home loan. You can use a term plan calculator to determine how much life cover is enough for the family.  

Comparing HLPP and term life insurance policy

Many suggest that a term plan is sufficient to cover your home loan, and it eliminates the need for an HLPP. However, if you do not have a term plan or the sum assured is insufficient, opting for an HLPP might be necessary. Here are a few distinguishing points to give you a clear idea.

  1. Premium

An HLPP requires a single premium payment. The amount is calculated by clubbing the premium and home loan values together. This means, if your home loan amount is INR 10 lakh and the premium is INR 1 lakh, your total liability becomes INR 11 lakh. In a term policy, you have the option to pay a one-time premium or bear the cost on a monthly, quarterly, half-yearly, or yearly basis. The premium is comparatively lower than HLPP, and you can reduce it further by opting for online term insurance

  1. Coverage

When it comes to coverage, a term policy puts you in a more advantageous position. With an HLPP, the benefit only repays your home loan. A term policy offers a substantial lump sum. The nominees have the freedom to use it as per their financial requirements.

  1. Flexibility

You cannot change your HLPP tenure even if you have to extend the home loan duration for some reason. You cannot transfer the HLPP even if you change the home loan lender. These disadvantages make HLPP an inflexible option. On the other hand, you can increase or decrease the term policy cover, making it a flexible choice.

Which option to choose

A home loan is a serious commitment. Hence, if you want to insure the loan, it is wiser to opt for a favorable policy. An online term insurance plan gives you the liberty to extend your benefit while taking a home loan, enabling you to ensure that the liability does not affect your loved ones.

With a term plan calculator, you can easily get an understanding of the required sum assured and the payable premium.