Buying a house is a milestone event of life. It is not just a high value asset that you are investing in. It is what you will call ‘Home’ for years to come.
That is why, most people spend days, if not months, diligently searching for the home of their dreams. And once you finally find the house that you want to transform into a home, you apply for a home loan, it gets sanctioned, and you get the keys to the house.
However, technically you do not own the house at present. You have a 20-year home loan which needs to be paid diligently over the years. But, of course, you have accounted for that. Your income currently is enough for you to pay the loan as well as manage other household needs; and it is only going to grow over the years. There is also an auto-debit facility in place, so you don’t have to worry about missing any installment.
But life tends to be unpredictable. We have seen that uncertainty can strike at any time. And if, God forbid, something were to happen to you, and you unfortunately pass away, then the regular income would stop and so would the installments. Your family becomes unable to afford both the household expenses and home loan installments, and they would have to let go of their home.
Hence, the necessity for you to have a Home Loan Protection Plan (HLPP) when taking a home loan. HLPP is simply an insurance plan under which the insurance company pays off the balance amount of your home loan to the bank, NBFC or housing finance company, in case of the unfortunate death of the borrower. The most common and preferred HLPP in the market is a Mortgage Reducing Term Assurance or MRTA plan.
What is MRTA?
Mortgage Reducing Term Assurance is similar to a term life insurance plan, that is, it pays the assured amount only in case of the death of the insured person. There is no maturity benefit under this plan. This explains the ‘Term Assurance’ part of the name. Your home loan or mortgage keeps reducing over the years as you keep paying regular installments. The sum assured under the MRTA plan, follows the loan schedule and reduces over time as the outstanding loan amount reduces. Hence the term ‘Mortgage Reducing’.
So, what are the key features and associated benefits of an MRTA plan?
· Simple application process
Banks or housing finance companies that fund home loans, usually have a tie-up with select insurance companies to offer MRTA plans to their home loan customers. This tie-up not only ensures that you get a better premium rate, but also the process and documentation involved in acquiring insurance becomes quick and easy.
· Lower premium
The benefit schedule of a MRTA plan follows the loan schedule i.e. the sum assured reduces over time as the loan liability reduces. Hence, the premium for this plan is lower than other home loan protection plans. MRTA plans also offer the option to pay a single premium at plan inception or pay regular premiums which can be bundled with home loan installments.
· Joint life cover option
MRTA plans offer joint life cover for co-borrowers of the plan. If the loan is in a joint name with one’s spouse, parent, child, sibling, or any partner with insurable interest, both lives can be covered under a single plan.
· Easy claim Process
In case of your unfortunate death, that triggers the home loan insurance, your lender settles the loan amount with the insurance company, and the excess amount, if any, is paid to the beneficiary. There is minimum involvement required on the part of the beneficiary during this entire process.
In addition to the above listed benefits, different plans offered by different insurance companies, provide additional features and advantages like premium discount, moratorium period cover etc.
We cherish and take care of everything we own because these are things that we have bought with our hard-earned money. Then how can one have a casual attitude about the house that has been a long-cherished dream; and which has come true after years of planning and saving. While not every precious thing in life can be insured, the ones that can be, should be. Hence, ensure you cover your home loan with MRTA and live a fearless and worry-free life.
Vighnesh Shahane is MD & CEO of Ageas Federal Life Insurance.