Financial Health Check

I have just taken a home loan for Rs 20 lakh. Do I need to increase my life insurance? How much and what policies can I look at? My family h...

I have just taken a home loan for Rs 20 lakh. Do I need to increase my life insurance? How much and what policies can I look at? My family has my wife and two children (age 10 and 6). My wife is non-working.
Puneet Syal, Delhi

Yes, you definitely need to take insurance as you are building an asset for your family and I’m sure want it to be a boon for them not a bane, in case of any unfortunate eventuality. Also I feel insurance is very important to protect the investment you have already made or will be making in the property. The plan you should buy will depend upon the liquidity available with you for investment. In case you want to keep the insurance premium minimum, you should first decide if you are taking the insurance for just covering your home loan or need insurance to give additional protection to your family also. If you are just buying additional cover for the home loan, then you should go in for policy called ‘Loan Cover Term Insurance Plan’. In this policy the sum assured is linked to the loan taken and comes down as the principal outstanding reduces. Technically this should be the cheapest form of insurance as the sum assured comes down.

The other option is to take a term policy of the loan amount, without return of premium for the longest term – which is upto 25 or 30 years for a flat sum assured of Rs 20 lakh which is your home loan amount. In this case if there is any excess of the insurance over the principal outstanding, the same can go towards your family’s future security. Given that your wife is not working and you have young children, this would be the best option for you. Also the fact that this product is offered by almost all insurers, due to competition the premium that you may end up paying for this plan maybe even lower than that for the loan cover term insurance.

In case you feel you have sufficient liquidity then you can go in for a unit linked plan which offers built in flexible term. In this way you will be able to build a corpus for future as well as keep changing your sum assured as per your needs as and when required.

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Disclaimer: The information and advice on this page is only indicative. The Indian Express takes no responsibility for the investment decisions of the readers.

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