Home Loan Insurance

By: EconomyWatch Content   Date: 23 December 2009

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What would happen if you face unemployment during the term of a loan? What can you possible do to prevent defaults on loan payment? In both situations, the lender will be forced to begin foreclosure process. Preventing it is possible if you decide to purchase a home loan insurance policy.

What is a Home Loan Insurance Policy?

A home loan insurance policy provides financial cover against home loan liability. It means that this insurance policy will pay for the home loan installment in case the policyholder defaults on the loan. To get this financial relief, one has to pay annual premium to the insurance company. However, the premium is much lower than the actual home loan amount.

 

Also, the home loan insurance provides coverage for payment default only under given terms and conditions. These include: 

  • Death of the policyholder.

  • Loss of income due to an accident.

  • Unemployment.

  • Financial hardships due to unforeseen circumstances. 

It will not pay for deliberate default on payment.

Home Insurance Policy: Benefits

 

An individual can buy a home insurance policy from a private insurance company. Some private insurers give special benefits in case of a policyholder's death. They pay for the balance of the home loan premium and refund the remaining insurance amount to the nominated beneficiaries.

 

Apart from financial relief, a home loan insurance policy is essential to seek a low-interest loan. Suppose an individual has average credit score, then lenders would charge a higher interest rate. However, with a home loan insurance policy, the lenders are assured about their repayment. Besides, they can offer standard interest rates as per the market conditions.

 

In some nations, the government insures home loan advances to low and moderate income families. In the US, the FHA (Federal Housing Administration) loans are built on this concept. However, the FHA does not provide loans but it insures private loan borrowings by low to moderate income groups. This boosts money exchange cycle as well as real estate industry in the nation.

 

However, in some nations, the governments offer tax benefits for purchasing a home loan insurance policy.

 


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