Insurance policies help one to secure their liabilities, in case of any unfortunate event. Homebuyers, these days, are encouraged to buy both home insurance as well as home loan insurance. Even though both the insurances sound similar, they serve different purposes.
We take a look at the differences between the two.
Understanding home insurance
Home insurance usually has two parts-one that covers the structure and the other that includes the household valuables such as electronic appliances and furniture. Depending on the type of insurance, one can get cover for fire and allied perils, including lightning, storm and flood, and earthquake. One can also get insured against burglary, damage, and mechanical or electrical breakdown.
Different types of home insurance policies
- Standard fire & allied perils policies: This covers most of the perils the property is exposed to like fire, riots, flood, and storm.
- Burglary & housebreaking insurance policy: This includes the loss of current assets due to burglary or theft.
- All risks policy: All valuables can be covered under this.
Tax implications
Unlike other insurance policies, the premium you pay for your home insurance is not tax-deductible.
Who can buy home insurance?
Both property owners and tenants can buy home insurance. However, tenants can get the contents (valuables) insured and not the structure as it is a rented property.
Understanding home loan insurance
The home loan insurance covers a borrower’s outstanding loan liability. It is useful in case of unfortunate events like loss of income or death of the person paying the EMIs. In such scenarios, the insurance company will settle the remaining dues with the bank.
Policy coverage
First thing first, this is an insurance for your home loan and not your home. Thus, just your home loan is secured. You will still have to get your home insured. Like your car or home insurance, you will have to pay a premium for this as well. The premium depends on your age, loan tenure, amount, etc.
Tax implications
If you pay the premium yourself, you can claim tax deduction under Section 80C of the Income Tax Act. But if your lender pays the insurance premium (which means it is a part of your loan), then you cannot claim any deductions.
Is it mandatory to buy home insurance or home loan insurance?
Well, opting for home insurance or home loan insurance is entirely the homebuyer’s prerogative. However, if your pocket allows, you should consider buying both.
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