Will Your Property Become an Asset or a Debt? A Lesson in Financial Foresight Liability Insurance on Home Loans
When we think of buying a house, it’s often seen as a symbol of success and stability—an asset we plan to pass on to the next generation. But have you ever paused to think: Could this very asset become a burden? Could it turn into a debt that haunts your family in your absence?
This isn’t just a financial scenario—it’s a life lesson in foresight and planning. Whether your property remains an asset or becomes a liability depends entirely on your financial preparedness.
Let’s break this down with a real-life-inspired story.
The Home Case of Somasekharam: A Harsh Wake-Up Call
Somasekharam, an employee at a private company, was earning Rs. 80,000 per month. Like many of us, he dreamed of owning a home. He found a nice flat close to his office, priced at Rs. 50 lakhs. He put in Rs. 10 lakhs from his savings for the advance and registration, and took a home loan of Rs. 43 lakhs from a bank. Liability Insurance on Home Loans
While signing the loan agreement, the bank manager suggested,
“It would be better to take product liability cover insurance. In case of an unexpected accident, the insurance company will settle the loan, and your family won’t bear the burden.”
But Somasekharam brushed it off,
“Why talk about death when we’re celebrating a new home?”
He declined the insurance. The loan was approved, and the home was his—or so it seemed. But the reality is that a home under loan isn’t fully yours until the last EMI is paid.
Five years later, tragedy struck. Somasekharam passed away in an accident. His grieving family received a small sum from his company, just enough to scrape by. A month later, the bank knocked on their door asking for the next EMI.
They couldn’t pay.
Three months later, the house was auctioned. The very asset Somasekharam worked so hard to buy became a debt. The family was left without even a roof over their heads.
If he had taken that one extra step—if he had taken liability insurance—this story could have had a different ending.
What Is Liability Insurance on a Home Loan?
Liability insurance (also known as loan protection insurance or product liability cover insurance) is a policy that pays off your outstanding home loan in the event of your death. It ensures your family isn’t saddled with the burden of EMIs when you’re no longer there to pay them.
Depending on the loan amount and term, a one-time premium of Rs. 2.5 to Rs. 3 lakhs may cover the entire tenure. That’s a small price to pay for peace of mind.
Do You Really Need Liability Insurance?
Not always. If you already have sufficient life insurance, you might not need an additional liability policy. For example:
-
If Somasekharam had taken a term life insurance of Rs. 1.5 crore, the Rs. 43 lakh home loan could have been paid from that, leaving his family with Rs. 1.07 crore in hand.
-
If your term life insurance is over Rs. 2 crore and your home loan is less than Rs. 1 crore, you may not need liability cover.
-
If your spouse is financially independent, your children are settled, and you have substantial insurance coverage, liability insurance might be unnecessary.
The key is to evaluate your current financial situation and future responsibilities.
Already Have a Loan But No Insurance? Here’s What You Can Do
If you’ve already taken a home loan but missed taking liability insurance, all is not lost. You can:
-
Opt for a personal accident policy: It’s a workaround, especially useful if the loan was taken long ago. These policies typically pay out only in the case of accidental death.
-
Add-on home loan protection: Some insurers offer protection for home loans by paying an additional Rs. 800 to Rs. 1,000 on your accident insurance premium.
This way, even if something unfortunate happens, the house won’t become a burden on your loved ones.
Important Points to Remember
-
Don’t compromise on coverage to reduce premium. Lower premiums often mean shorter coverage terms or lower benefits.
-
To take high-value term insurance, you’ll need to show proof of income. But with liability insurance, you only need coverage equivalent to the loan amount.
-
Insurance must match your financial stage. Young families with high loans and limited savings need it the most.
Final Thoughts
A home is more than just bricks and mortar—it’s a legacy. But without the right financial planning, that legacy can quickly turn into a liability.
Before you celebrate your new home, ask yourself: Am I protecting this investment for my family’s future?
Liability insurance might seem like a “what if” expense today. But for your loved ones, it could mean the difference between stability and struggle.
✨ About Me
Hi! I’m Manikanta Reddy, a passionate finance enthusiast with a strong understanding of money management, personal finance, and smart investment strategies. I believe financial literacy is the foundation of a secure and stress-free life — and I’m here to share practical insights, real-life examples, and simplified advice to help you make better financial decisions.
Whether it’s choosing between paying off a loan or investing, building emergency funds, or planning for retirement — I love breaking down complex topics into easy, actionable tips that anyone can follow.
Let’s learn, grow, and build wealth — the smart way. 💰
Good information bro 🤜
WONDERFULL