Mortgage Insurance vs Home Insurance

Buying a home is one of life’s biggest achievements. It represents security, comfort, and years of hard work. But along with the excitement of homeownership comes the responsibility of protecting your investment and your family from financial and unexpected risks.

Two terms often come up when people start planning their finances around a new home: mortgage insurance and home insurance. Though the names are sometimes used interchangeably, these policies serve completely different purposes.

If you’re unsure which one to choose or whether having both is the right decision, we explain what mortgage insurance and home insurance are, how they differ, and how to select the cover that best suits your needs.

What is Mortgage Insurance?

Before deciding on the type of cover, it’s important to understand what mortgage insurance is and what it actually does.

In India, mortgage insurance is a loan protection plan. Its role is simple: if the borrower passes away, becomes permanently disabled, or is diagnosed with a critical illness during the home loan tenure, the policy pays off the outstanding home loan.

This helps the lender recover their money, but it also indirectly benefits your family. They can keep the home without worrying about repaying the remaining EMIs, even if the main borrower is no longer able to contribute financially.

Is Mortgage Insurance Mandatory?

Mortgage insurance is not legally mandatory in India, but many banks and housing finance companies recommend or bundle it as part of the home loan process. This is particularly common if:

●        Your down payment is less than 20% of the property’s value

●        Your Loan-to-Value (LTV) ratio is high

●        You are the sole earner in your family, making risk mitigation important for the lender

Even when not compulsory, mortgage insurance can offer peace of mind for families who want the assurance that their home won’t be lost due to unforeseen tragedies.

Also Read: Does Home Insurance Policy Cover Flood Damages?

What Mortgage Insurance Does Not Cover?

Mortgage insurance is not designed to protect your property or belongings. It does not:

●        Cover damages to your home caused by natural disasters or accidents

●        Pay for repairs, rebuilding, or replacement of household items

●        Provide cash payouts to your family beyond clearing the home loan

Its sole function is to make sure the home loan is repaid if the borrower cannot do so due to death, disability, or illness.

What is Home Insurance?

While mortgage insurance focuses on protecting the loan, home insurance protects the property itself and, in many cases, the belongings inside it.

A home insurance policy can cover losses from:

●        Natural disasters such as floods, earthquakes, and cyclones

●        Accidents like fire or explosions

●        Theft, burglary, or vandalism

●        Third-party liability, where someone is injured or their property is damaged while on your premises

For instance, if a fire damages your home, a home insurance policy can help you cover the costs of repairing or rebuilding the structure and replacing damaged belongings.

Is Home Insurance Required?

No, home insurance is not mandatory in India. Regulatory authorities like RBI and IRDAI do not require homeowners to purchase it. However, it is highly advisable to have one, especially when you're making such a big investment.

With rising threats from climate change, urban living risks, and property crimes, a home insurance plan can be your financial shield. Bajaj General Insurance offers tailor-made plans that not only cover the structure of your home but also its valuable contents. You can even use their home insurance calculator to estimate premiums and select the coverage that best suits your needs.

Why You Need Home Insurance Even Without a Loan?

Many people assume home insurance is only necessary while repaying a mortgage. However, the reality is that your home remains vulnerable to damage and theft even after the loan is cleared. A single event like flooding, fire, or burglary could lead to major financial losses.

By maintaining a home insurance policy, you avoid large out-of-pocket expenses if something goes wrong.

What Home Insurance Doesn’t Cover?

Although home insurance provides broad protection, most policies exclude:

●        Gradual wear and tear or ageing of the building

●        Damage due to war or nuclear events

●        Negligence or intentional damage by the homeowner

●        High-value items such as jewellery or art unless specifically declared and covered

Reviewing your policy terms helps you understand exactly what is and isn’t included.

Why Use a Home Insurance Calculator?

One common question homeowners ask is how much home insurance they actually need. The easiest way to figure this out is by using a home insurance calculator.

This tool lets you:

●        Estimate the ideal level of cover based on your home’s location, value, and the contents you wish to insure

●        Compare premiums for different coverage levels

●        Find a balance between comprehensive protection and affordability

It takes the guesswork out of planning and helps you choose a plan that suits your property and budget.

Mortgage Insurance vs Home Insurance: A Clear Comparison

Let’s break down the mortgage insurance vs home insurance discussion in simple terms:

How to Choose the Right Cover?

1.     Assess Your Loan Situation

-          If you’re taking a large loan or paying a small deposit, check with your lender if they require mortgage insurance. Consider it even if not required, as it helps protect your family from financial strain.

2.     Evaluate the Value of Your Home and Belongings

Calculate the replacement cost of your property and assets, rather than just the market value, when choosing a home insurance plan. Use the home insurance calculator to determine the right coverage amount.

3.     Check Premium Affordability

Both types of insurance can be paid as a lump sum or in instalments (for mortgage insurance) and annually or monthly (for home insurance). Adjust deductibles or coverage limits if you want to make the premiums more manageable.

4.     Review Exclusions Carefully

Understand what isn’t covered, especially for home insurance, so you can add riders or optional covers for full protection.

Also Read: Important Things to Consider While Buying a Home Insurance in India

Should You Have Both?

For many homeowners, the best solution is to have both types of cover,  especially if you are still repaying your loan.

●        Mortgage insurance ensures your family won’t lose the home if something happens to you.

●        Home insurance ensures that the property and your belongings are financially protected against risks like fire, floods, or theft.

Even after your mortgage is fully paid, continuing your home insurance can save you from heavy expenses if disaster strikes.

Conclusion

Buying a home is not just a financial milestone—it’s a life milestone. But protecting that dream home is just as important as acquiring it. While mortgage insurance secures the lender’s interest, home insurance safeguards everything you’ve worked for.

Think of home insurance as a long-term safety net, one that keeps you covered even when life throws unexpected challenges. And with Bajaj General Insurance, you get the trust, flexibility, and transparency you need to make smart, stress-free decisions. Use their home insurance calculator to get started on securing your home today.

FAQs

1. What is mortgage insurance, and do I need it?

Mortgage insurance is a type of policy that protects the lender—not the borrower—if the borrower fails to repay the home loan. It is usually required when the homebuyer makes a down payment of less than 20% of the property’s value. The lender assumes more risk in such cases and uses mortgage insurance to recover potential losses. While not legally mandatory in India, lenders may require it depending on your loan terms.

2. What does home insurance cover?

Home insurance protects the structure of your house and its contents against various risks. This includes damage from natural disasters like floods, earthquakes, and storms, as well as man-made threats like theft, burglary, fire, and accidental damage. Some plans also cover third-party liabilities, which means if someone is injured on your property, your policy may handle the legal and medical costs.

3. Is it mandatory to buy home insurance?

While home insurance is not legally required by regulatory bodies like RBI or IRDAI, it is strongly recommended. Considering the rising risks of natural calamities and urban hazards, home insurance offers much-needed financial protection and peace of mind for homeowners.

4. Can I pay my home insurance premium in EMIs?

Yes. With Bajaj General Insurance, homeowners can choose between a one-time premium payment and easy monthly instalments (EMIs). This flexibility makes it easier to secure your home without placing a heavy financial burden.

5. Does mortgage insurance cover my home structure?

No. Mortgage insurance only protects the lender’s financial interest. To protect your home structure and personal belongings, you need a dedicated home insurance policy.

6. Can I cancel home insurance after my mortgage is paid?

You can, but it’s not advisable. Your house continues to face risks even after your loan is cleared. Keeping your home insurance active ensures ongoing protection against unforeseen events.

7. How do I know how much coverage I need?

Use the home insurance calculator as it helps you estimate the ideal coverage based on your home’s value, location, and contents.

8. Does Bajaj General Insurance offer both home and mortgage insurance?

Bajaj  General Insurance specialises in home insurance, offering customisable plans for all property types. Currently, mortgage insurance is generally managed through lenders.

9. What are the risks of not having home insurance?

Without home insurance, you may have to bear high repair or replacement costs in case of fire, floods, or theft, leading to significant financial strain.

10. Can I transfer home insurance if I sell my house?

No. Home insurance policies are non-transferable. The new homeowner must purchase their own policy to secure the property.

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