Choose a regular premium paying product over a single premium

Cover your home loan with a credit shield insurance policy

A home loan is fully backed by a collateral, canada goose outlet kokemuksia which is 20 to 25 per cent higher in market value. Further, the quantum of loan to be sanctioned is ascertained based on the income generating ability of the borrower and not the underlying asset. The latter is true for commercial loans. Due canada goose clothing uk to their low risk profile, home loans are charged the lowest interest rates. Banks can take possession of the property to recover the principal amount. However, selling a real estate asset is a long drawn canada goose outlet process. To circumvent this, banks recommend that their borrowers buy life insurance. The question is whether this is good for the borrower as well.

Insuring home loansThe term insurance attached with loan products is commonly referred to as Credit Shield. The standard version of such a product is a single premium plan. The plan is of the same duration as the loan term. The sum assured is equal to the loan amount. Generally, the coverage is based on a reducing canada goose outlet online sum canada goose parka outlet uk assured linked to the reduction in loan principal amount. The claim amount is paid to the bank, as an assignee of the policy. Some insurers settle the claim amount in favour of the loan account of the borrower. The premium is paid as a lump sum to the insurer. It gets added to the total loan amount, and is then recovered from the borrower via the EMI (equated monthly instalment). If you examine this carefully, you’ll notice that the design of the plan is primarily to protect the canada goose outlet canada lender’s interest. So, there is hardly a residual amount left for the borrower’s family.

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Credit shield coverage cannot substitute for a term insurance. However, on cheap canada goose jackets uk a standalone basis, the biggest advantage of credit shield is its ease of canada goose outlet in new york administration: Issuance rates are high, and the borrower rarely has to canada goose coats uk undergo a medical check canadian goose jacket up. At the time of the claim, the borrower’s family cheap canada goose china has to complete only limited paperwork, and the bank directly coordinates with the insurer. The principal disadvantage however is the cost. Some banks have tie ups with insurers offering expensive plans. When this premium is recovered upfront, the borrower has to pay high premiums and interest on top of that.

Some NBFCs do offer a few product options to the borrower. These include flat sum canada goose mens uk assured and reducing sum assured. Insurers have started differentiate their offerings by including riders for accidental death, disability and critical illness. Given that the overall sum assured of the credit shield is low, we recommend avoiding the add ons. Instead, you should buy standalone comprehensive plans for these covers.

Enhance your cover

For term life, the recommended sum assured for an individual is about ten times her annual income. This should be enhanced further for any known financial liability such as a loan, or planned expenditure such as child’s marriage. When buying a term insurance, it is a good practice to opt for an insurer with more than 90 per cent claim settlement track canada goose 3xl uk record. The core cheap canada goose coverage where do uk canada geese go in winter of term insurance is the same across insurers. The only exclusion allowed is suicide in the first year. You can choose the cheapest plan that meets the above criteria. Some plans offer an additional terminal illness cover within the same premium. Buy the term insurance at a young age. The premium is low then, and gets locked for the term of the plan. So, the sooner you buy, the better it is for you. For a 40 year old, looking for a coverage of Rs 1 crore till the age of 60, the premium works out to around Rs 10,000 plus taxes.

If you already have a term cover to take care of your family expenses and liabilities, you could opt out of the credit shield product. In your existing plan, you can do a partial assignment of the proceeds in favour of the bank. This canada goose black friday sale 2019 will suffice for the risk concerns of the bank and will be cost efficient for you. In case, you do not have a term cover or the coverage is inadequate, you can opt for the credit shield product. Choose a regular premium paying product over a single premium one. You will be able to discontinue this in case the loan is pre paid.

Young home buyers in the age group of 25 to 35, often have an air of invincibility. Life, however, is unpredictable. While the average life expectancy goes well past the loan term, canada goose outlet washington dc some unfortunately die at a young age. We understand that insurance is an additional cost, over and above the expensive house and it’s and associated loan costs. However, just like banks take a broader picture to hedge their portfolio, borrowers should develop a similar perspective. Insurance helps fulfil the basic purpose of buying a house that of taking care of the family, more so in your absence. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights analysis For more information, check out the Moneycontrol website or mobile app.

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