When taking a home loan, banks or NBFCs often offer life insurance coverage as part of the mortgage package. According to reports from Mint, the primary objective of such policies is to cover the loan amount, specifically helping pay off the loan in case of the primary borrower's death. There are two main types of coverage available: flat term cover and reducing term cover. In a flat term cover, the coverage amount remains the same irrespective of the outstanding loan amount, while in a reducing term cover, the coverage amount roughly corresponds to the principal outstanding amount.
As reported by Mint, the reducing term cover is cheaper than the flat cover due to the lower coverage over time. In a flat term cover, if the borrower dies, the excess amount after settling the loan is paid to the nominee. The reducing term cover is designed to match the decreasing loan amount as more EMI payments go towards principal repayment rather than interest costs. Financial experts recommend that borrowers should consider purchasing a standard level term insurance that covers overall needs rather than just loan-linked insurance coverage.
According to Mint reports, financial experts strongly recommend purchasing a standard level term insurance that covers overall needs, not just loan-linked insurance coverage. As a rule of thumb, one should carry a term cover of at least ten times one's annual income. This approach provides comprehensive protection beyond just loan repayment obligations.
