HDFC home loan insurance plan review

A house is usually the single largest purchase most people make in their lifetimes. Most people put in all their savings and take a large loan to fund this purchase. Real estate estate prices have increased manifold across all major cities in India including Mumbai, Delhi, Bangalore, Chennai etc.

Smaller cities such as Chandigarh and Pune have also seen massive appreciation in real estate prices. With this increase in real estate price, the average amount of loan taken has increased substantially over the years. Huge loans and the general uncertainity of one's life can be the reason for stress. In case a home loan borrower dies before the repayment period is over, the home can be at risk unless the heirs are willing to take on the home loan in their name. To deal with this uncertainity, HDFC offers a product called the 'HDFC loan cover term insurance plan'. This plan can cover home loans taken from any bank or financial institution whether it's ICICI, ABN Amro, Citibank, SBI, Canfin or any other. This product is not limited to HDFC home loan applicants.

To illustrate:

Let's say, Ramesh, who is 30 years of age, purchases a home for Rs.40 lakhs inclusive of stamp duty and registration. His contribution to this is Rs.10 lakhs while his bank finances him with Rs. 30 lakhs. The repayment period of the home loan is 15 years. Ramesh wants to ensure that in case he dies prematurely, his family doesn't have any financial troubles. What Ramesh is looking for is a way by which the home loan gets paid off automatically, if he dies in the next fifteen years. Ramesh can opt for a home loan insurance cover of Rs.15 lakhs for a 15 year period for Rs.6510 a year with HDFC. Since his home loan amount is Rs.30 lakhs, the premium will be Rs.13,020 for a year. After purchasing this policy, Ramesh can be sure that if he dies, the home loan will be paid off by HDFC and his family will have the home, without any loan on it. The premium of Rs.13,020 and can be paid by Ramesh in four quarterly installments if he chooses to. Ramesh can pay the premium upto 15 days after the due date and manage his own cash flow easily. Auto debit facility is also available.

A striking feature of this policy is that Ramesh has to pay premium only for 10 years. For the next 5 years, Ramesh's home loan will be covered under this insurance plan without any premium being paid.

Ramesh can also opt for a single premium policy paying a premium only once and getting covered for fifteen years. If he opts for this option he can pay Rs.66,540 once and be sure that if he dies anytime over the next fifteen years, HDFC will pay off his entire loan of Rs.30,00,000 and the home will belong to his family, free of any loan.

There are many major illnesses that can affect a person and his ability to earn. There is an additional clause under which if Ramesh is affected by a crtitical illness, the entire sum of Rs.30 lakhs will be paid out to him. The illness covered include Cancer, Coronary Artery By Pass Graft Surgery, Heart Attack, Kidney Failure, Major Organ transplant and Stroke. For this benefit an additional premium would be payable. This can be especially useful because typical health insurance plans which cover many more illnesses are far more expensive in terms of premium. Accelerated sum assured is not paid for illness that were in existence at the time the policy was issued.

The HDFC home loan insurance policy can be taken for a period from 10 years to a maximum of 30 years. For single premium policies, the maximum term is 15 years.

There are substantial tax benefits associated with the home loan insurance cover plan. For one, all the premiums Ramesh pays can be deducted from his income. He doesn't have to pay tax on the amount of Rs.13,020 he pays as insurance premium under section 80 C. Additionally, if he dies and HDFC pays off the home loan, this amount of Rs.30 lakhs is totally tax free. Under section 80D, the amount paid for the Accelerated sum assured option also qualifies for a deduction from your gross income.

The usual riders apply in this home loan insurance plan. Suicide within one year of taking out the policy is not covered. HDFC will not pay critical illness benefit, Accelerated sum assured benefit or accidental death benefit if the critical illness or death is caused directly or indirectly by any of the following:

• Alcohol or solvent abuse or the taking of drugs except under the direction of a registered medical practitioner.
• War, Invasion, hostilities (whether war declared or not), civil war, rebellion, revolution or taking part in a riot or civil commotion.
• Taking part in any flying activity other than as a passenger in a commercially licensed aircraft.
• Taking part in any act of a criminal nature.

HDFC will not pay Critical illness Benefit, Accelerated Sum Assured Benefit, if the critical illness is caused directly or indirectly by or if the life assured is totally disabled directly or indirectly by any of the following:

• Intentionally self-inflicted injury or attempted suicide, irrespective of mental condition.
• Pregnancy or childbirth or complications arising from them.

This is really, a glorified term insurance plan from HDFC and the amount being paid every year may seem like an expense especially if you're already burdened with paying large EMIs month after month. Yet, that is precisely the reason you should seriously consider this plan. Consider the fact that most of the EMIs we pay on housing loans covers only the interest component. With 12 % per annum interest, on 30 lakh rupees, the interest alone is Rs.30,000 a month! In case of premature death, a person who's taken a home loan could leave behind a large part of a liability, having mostly paid only interest over the years. The premium on this home loan insurance policy is a small price to pay for the peace of mind it brings. If you can afford the few thousands a year, you should give a serious thought to this home loan insurance plan from HDFC. The tax benefits are a bonus. The above rates are indicative and can vary from case to case. Please use your own discretion when applying.