13 January

If you have a loan, you cannot miss having a term plan

Category: Moter insurance

Who doesn’t like the luxuries of life like Cars, Bikes, Comfortable homes? It becomes much-more easier to pay off in terms of EMI or with a loan, doesn’t it?? It’s all happy till you are working, earning and are there to pay for it, but, what if something unfortunate happens to you, taking away your life or ability to work? This is exactly where a term plan comes into play, to stand guard for you and your family in times of adversity, the loss will be amplified several times with an outstanding loan. You need to make sure that your Equated Monthly Installments are paid in time, with or without you and  that would mean equated insurance cover against the loan and a term insurance plan does exactly that that too at a nominal monthly/annual cost.

A premium of about Rs. 12,000 p.a. could get you an insurance cover of about Rs. 1 crore, this (premium) might vary taking into consideration policyholder’s age and lifestyle ex: Smokers have to shell out more for the same amount of insurance cover.

While savings are a good choice but take this into consideration, if you save 12,000 per year for 50 years, you will end up saving Rs. 6,00,000 but in an insurance those 12,000 can get you a cover worth 1 crore, much more than what an average middle class family can afford to save, i.e. 16 times that. Also, at the rate of Rs. 12,000 a year it would take you about 833 years to save 1 crore. It is also very important that the money gets into hands of the right person at the right time.

When making the claim, you can choose either to get the entire amount in lump-sum or in installments. The former gives you one-time payout while the later acts as a replacement for your income. You are provided with the following 4 options:  

Lump-Sum (one time); Fixed monthly income; Increasing monthly income; Lump-Sum + Regular Income.

Choose the payout option that suits the best for you and your family according to expenses and lifestyle.

It can help you pay-up the following kinds of loans.

Married Woman’s Property Act:

Designed to protect the properties owned by married women from their relatives, creditors and even from their own husbands, in case of a court or any income tax department attachment, to ensure that no unlawful claims are made by any of the above. It ensures the passage of claim benefits to beneficiaries and trustees. Bank and creditors can’t attach life insurance proceeds under MWP act.

Home Loan:

To continue paying your EMIs in time even when you are gone, it is important that you insure your home loan against term plan. You can opt for lump-sum if the amount is high.

Critical illness cover will give you added benefits in case you get affected by diabetes or cancer like life threatening diseases; An amount of 20-30 lakhs would be ideal for this.

Education Loan:

With relatively smaller EMIs compared to Home Loan, you can opt for monthly installments on this one. This is highly advised with accidental death benefits if you use bike to commute for work.

Mortgage Insurance Plan:

It’s a dedicated home loan product also called as Home Loan Protection Plan. This covers loss against non-payment of EMIs in the unfortunate event of borrower’s death. Additionally, riders like accidental death cover, Disability, critical illness and job loss (with a maximum of 3 EMIs) can be added.

These are mostly single premium policies, but, variants for regular and limited premium payment terms are also available. Banks allow the borrower to bundle the premium amount with the loan amount in single premium payment system.

Mortgage insurance versus term plan:

Not as popular as term plans due to their clubbing with home loans from the banks, acts as a contract between the bank and the insurance company, helps settle the outstanding loan amount with bank on behalf of the policyholder.

These plans are relatively more expensive than pure term plans due to huge percentage of surrender value of the remaining premium for single or limited premium payment plans. These can’t be ported to other lenders as they are under master policy between bank and the insurer. Even though, it’s not compulsory by law, banks often insist on it.

Use your own discretion as a basic term policy with equivalent amount of sum insured is better and cheaper way to secure the loan.

Personal Loan:

Due to the small repayment tenure, you should carefully decide which payout option suits you the best.

Due to the high interests on these loans, critical illness cover is advised. An amount in proximity with 20-30 lakh should usually suffice.

Car/Bike Loan:

Due to relatively low cost, EMIs for bikes when compared to cars, you can opt for regular installments while a lump-sum (30%-50%) + installment serves better for car loans. An accidental death benefit is advisable if you use bike to commute.