Things To Consider When You Are Reviewing Homeowner’s Insurance

Homeowner’s insurance is an insurance policy covering the structure of your house as well as the contents of your home. With the real estate boom at its prime in India, Home insurance India has evolved as one of the most enterprising sector in the real estate scenario in India. Home insurance is important as it not only provides you with financial protection against any damage your property might incur but also protects the home owner in the event that their home is damaged or if a person becomes injured. There are a number of factors you should consider when purchasing any product or service.

Know your Home Insurance

Selecting your home insurance can be one of the most important things to ensure your financial independence in the future. Choosing what you need and how much can be confusing. Home insurance or homeowner’s may either cover only physical structure of your home or only the contents of your house. Many people do not carry the right homeowner’s insurance or the correct coverage amount.  When you shop around for the ideal policy, look for a company or agent with whom you can freely discuss your needs. The right representative will help you locate and maintain appropriate insurance. Therefore, before you plan to choose a home insurance, know your insurance and its coverage. Following are some important types of Insurance available for Home or Homeowners.

• Home Insurance for Building: Building Insurance covers the physical structure of your home in case of a disaster, such as an earthquake or hurricane. If you are carrying a mortgage, your lender might insist on this type of coverage so that if you are unable to continue to pay your mortgage, they can still recover the value of your home after the disaster.

• Home Insurance for Content: Content insurance is the insurance policy that covers all movable goods and personal possessions within your home against loss or damage. Usually the contents insurance policy comes along with the home insurance policy though at times it may be sold separately. This insurance is great for tenant, landlord and property owners.

• Guaranteed or Extended Replacement Cost: This protects you from sudden increases in construction costs due to a shortage of building materials after a massive disaster or other unexpected situations. Guaranteed or Extended Replacement Cost offers the highest level of coverage. To ensure you are protected against inflation, you should check to see if your home insurance policy includes extended replacement cost coverage.

• Home Insurance for Title: According to insurance officials and real estate experts, six out of every 10 court cases filed or waiting to be resolved in India relate to property dispute or dispute on property title. The title insurance companies assure that if they miss any information that may result in financial loss, they will undertake the same. Therefore, Title Insurance Policy protects you against loss in the event of a property ownership dispute or defect of Title ownership like defective titles, forgery, frauds in realty transactions.

• Home Insurance for Home Loan: This insurance is not for your home content or building structure but for your home loan. Home loan insurance ensures sum of money towards repayment of your loan in the event of your death, disability or loss of job resulting in loss of income. This ensures that your family or dependents do not have to worry about the loan repayment and your home will be secure.

• Home Insurance for Loss of use: Loss of Use coverage is vital if your home is left damaged so badly that you can no longer live in it. In the event of a disaster that leaves you with no home, this policy allot you temporary home or a specific amount of money to cover bills for hotel stays, meals at restaurants, etc.

The structure of your house, your belongings, your liability to others and your living expenses are some of important things to consider when planning a homeowner’s insurance. When it comes to replacing the home itself, look for extended or guaranteed-replacement-value coverage. Make sure that your apartment owners association has a policy that covers the common areas, and get a copy. The home insurance policy is important for the homeowner as it ultimately gives the home owner a sense of security to protect his family and property against calamities

Home Loan Protection Plan to Protect Your Home Loan

With the upsurge of the real estate sector and the purchase of properties in India, seeking a home loan has become a clichéd aspect. Your home loan is associated with of one of the most imperative assets in your life, i.e. your home. You might have insured most of your assets like your property, automobiles, gadgetsand others, but do you think of insuring your home loan? Taking a home loan is a great concern as you will have to think about your family in the case of untoward incidents.How will they repay the huge amount in your absence which you have taken in the form of a home loan? Will they be capable and accomplish to repay the entire amount?  These are a few things which any loan seeker should think.

Various banks and financial institutions which offer you the complimentary service of home loan insurance along with the home loan you seek. Since the housing finance is rising on a peak, home loan insurance has gained impetus all over. Thus, you will be provided with a cover stating that the responsibility of your loan repayment is on your insurance company in case of permanent disability, critical illness or death. In order to insure your home loan you have to pay a part of amount as the insurance cover policy to secure your home loan. Doing this will save your family in times of peril in your absence.

Getting a home loan protection plan (HLPP) ensures your home loan burden will not be transferred to your family or dependants and they don’t worry that your bank or financial institute takes back the home. Doing this will make it easier for family to possess the property even after the death of the property owner.

After seeking a loan you will have an option of repaying the insurance premium in a lump sum amount in just a single EMI. Meanwhile the bank or the financial institution pays the premium amount to the insurer and later gathers it from the loan seeker along with his monthly instalments.

The benefits of seeking a HLPP are;

• The responsibility of repaying the loan amount is only on you and not on your family.
• In case of any critical illness, permanent disability or death of borrower, the family can still stay under the roof of the house for which home loan is outstanding.
• You can club all the insurance cover charges and pay it at a time along with your monthly instalments.
• Acquiring a home loan will also help you in times of financial crises by keeping your home intact with you and adds an additional security through a loan cosigner. Instances where you lose your job or a financial crunch will not affect your home loan insurance.
• Make sure that you save and take wise financial decision to cover your loan payment. This in turn will make your family secure and will not have a significant impact on them. Home loan insurance will also create a secure feeling amongst your family and saves them from the fear of being driven out of the house.

• You and your family members can seek financial help through the coverage of your home loan in times of sickness or any ailments where there is less income. In case the main bread winner of the family is sick or is unable to work, he/she can benefits from the home loan insurance.
• There are also options wherein you can take the premiums which you have paid for the home loan insurance during the times of tax payment. This will help you pay your tax as well as secure your home loan.

There are an array of home loan insurance policies in the financial market which are provided by companies likeLIC Mortgage Redemption, Aviva Life Shield Platinum, SBI Life Smart Shield, ICICI Pru Home Assure and others. These companies have declining term assurance policies to cover the home loan repayment.

• There are options that you can either opt for a single-premium home loan insurance cover or the one time premium. The payment of the premium depends on the amount of loan, age, health condition and the policy tenure of the loan seeker. Factors like a higher loan amount or a higher age of the loan seeker will result in a higher premium and a flawless medical health report will help the loan seeker to get insurance with a lower premium.

Reverse Mortgage: A new concept in Indian real estate

What is reverse mortgage?

A reverse mortgage is opposite of a home loan and is available to the senior citizens. In home loan or any typical mortgage, one borrows money and then pays it back over a period in the form of Equated Monthly Installments (EMIs). While in reverse mortgage, the owner of the house gets the money from the financier on their home. It is important that the home on which the senior citizens are looking forward to get the reverse mortgage should be in their own name and has no existing loan on their home. In this process, one gets a series of cash flow for a fixed tenure from the bank, this can also be thought of as reverse EMI’s.

All the senior citizens above the age of 62 years can go for the reverse mortgage on their property for tenure of 15 years. After 15 years, the money will stop coming but the owner of the house and their spouse can continue to keep living in the house until their death without paying a single penny as rent.

In case the old couple thinks of moving out of the property or after their death, the home serves as security against the money, the home is supposed to be sold in order to pay back the mortgage.  In some cases, the heirs of the owner have the option of retaining the property by paying back the loan amount.

 

The benefit of Reverse Mortgage:

For the people who have born in 1940’s and 1950’s, they have spent their lifetime saving in buying a home. The value of their property has appreciated but, at this stage of their life, they have no liquidity as all their money is locked up in a non-liquid asset.

According to a survey, an urban male in India lives to the age of 82. In general, the retirement age in India is 58. So, one typically lives 24 years after the retirement. With rising inflation, it becomes difficult to get required funds at this stage of life. Considering this the concept of reverse mortgage has the potential to meet the need of funds of the senior citizens in India.

The draft guidelines of reverse mortgage in India prepared by RBI have the following salient features:

• Any house owner over 60 years of age is eligible for a reverse mortgage.
• The maximum loan is up to 60% of the value of residential property.
• The maximum period of property mortgage is 15 years with a bank or HFC.
• The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
• The revaluation of the property has to be undertaken by the Bank or HFC once every 5 years.
• The amount received through reverse mortgage is considered as loan and not income; hence, the same will not attract any tax liability.
• Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

Documents required for Home Loan Application

You see an advertisement of a beautiful lake view villa with all luxurious amenities and wish to own it; the price also looks ideal. As you feel it is the right abode for you and your family, the next step would be to approach a bank for a home loan.

However, there are certain documents that are required to know your loan eligibility and for the processing of your home loan. If you are aware of these documents, and carry these to the bank during your first visit, it can help you save a lot of your valuable time and effort. These documents can help you know your exact loan eligibility in the first visit itself; moreover, if finalized, these documents can  get your file logged, thus helping you to avoid a second walk to the branch.

Here’s a complete list of documents that are required while applying a home loan:

KYC Documents (Documents for ID proof and address proof): If you are providing a copy of passport, or copy of Aadhaar, it would serve as both ID and address proof. However, if you don’t have a passport or if your passport has expired, then you can present your PAN card copy as ID proof and a latest telephone bill as address proof. The problem with many working professionals is that they change locations often and do not have proof for their current residence. In such cases, a passport copy can be given along with a copy of lease/rent agreement of your current residence.

Income Documents: For salaried class, sealed / attested copy of latest 6 months salary slip or a salary certificate is necessary. Copy of Form 16 will also be required by the bank. In case of self employed / business class, copy of latest 3 year’s ITR’s clubbed with Balance Sheets, P & L Accounts of the respective years (audited and certified) is required. If you are having a service provider kind of job, copies of Form 16-A, which reflects TDS deductions by your vendors will do. In case of NRI’s, an embassy attested salary certificate is often asked by the bank, along with a valid job contract copy.

Statements: Some banks ask for updated six months bank statement, while some banks require updated One year bank statement. For self employed / business class, one year bank statement is compulsory. If you have any other loans or liabilities, statements of those loans are also required to submit. If you have a recently extinguished loan, statements / loan closure letters can be asked by banks.

These are the documents required for sanctioning a home loan. Once your loan is sanctioned for the requested / eligible amount, you need to submit the legal documents pertaining to the property. It includes the present title deed, prior title deeds, sale and construction agreements (in case of apartments / villas), encumbrance certificate, latest land tax receipt, possession and location certificate (in the name of the present owner) approved plan and a copy of building permit. In case of house / apartment purchase, sale agreement / receipts of down payment also will be asked.

Home and Home Content Insurance in India

Home insurance, also commonly called hazard insurance is the kind of property insurance that offers insurance coverage to the homes. The home owner certainly counts his home as his biggest asset. Home insurance is basically required for the financial security it provides to the property in case of any loss suffered. Home Insurance has two parts—one covers the building, while the other covers the contents of the house.

Home Insurance

The home insurance policy is usually a term contract that is in effect for a fixed period of time. There are mainly two parts for insurance covered. One covers only the building, while the other covers both building and its content.

• Building structure-Insurance covers for a building structure includes compensations paid for losses due to fire, storm, tempest, flood, riot, strike, lightning, explosion & implosion, landslides and rock-slides, bursting or overflowing of water tanks, apparatus and pipes, earthquake and damages to the structure due to acts of terrorism.

• Contents of the home-This coverage is for the loss or damage of the valuables inside the home like the electronic and electrical goods, furniture, clothing, jewelry and any other precious contents inside the home. The contents are covered on the market value of the items and in case of a loss the insurance claim is paid on the value of purchasing a similar new item exempting the depreciation value. This Policy covers your Household contents only and when they are kept in the building but Jewellery is covered against snatching whilst being worn.

 

Content Insurance

Content insurance is the insurance policy that covers all movable goods and personal possessions within your home against loss or damage. Usually the contents insurance policy comes along with the home insurance policy though at times it may be sold separately. This insurance is great for tenant, landlord and property owners.

In case you sell the property during the policy period you can either do an endorsement to the policy changing the Insured premise address or also have the option to cancel the Policy. In case you have rented out your flat and moved out, if your current policy covers only the building then you can continue with same policy However, if your policy covers both the building and the contents then you need to inform the insurer and get the contents removed from the policy. You will be issued a new policy, which will cover the contents and will mention your new address as the “location of risk”.

Insurance covered under policy

• Content insurance policy covers all your Household articles like, Furniture, Fixtures, Clothing, Carpet, Linen, Electrical items like Refrigerators, Air conditioners, Washing machines, DVD players, Television sets, Tape Recorders and Electronic items like Computers are covered under this Insurance.

• Allied perils including Earthquake and Floods along with Burglary, Housebreaking, and breakdown of mechanical / electrical appliance are also covered under this policy.

• The Insurance cover the Jewels worn by your Spouse, Children and Parents or other family members residing with you. The policy covers your contents only and when they are kept in the building but Jewellery is covered against snatching or lost whilst being worn. Policies also include cover in the event of an injury in your home.

• The contents are covered on market value i.e. the cost of buying a similar new item after deducting appropriate depreciation on the basis of the age of the item. Home used for business purposes such as coaching class, Yoga and other commercial activities are not covered under this policy.

Tax benefits from an under construction home

 

Taking a home loan for an under construction apartment is quite beneficial as the customer can avail the deferred deduction on the interest payable during the pre-construction period. The loan seeker can avail the entire amount as deduction in equal installments starting from the financial year up to five years and till the construction is complete.

Tax exemption for an under construction property:

The pre-construction phase is the period which starts from the date of the borrowing and ending when the construction is completed. The Indian Income Tax Act states the conditions under which an employee with salary can claim the tax rebate on the interest payment for the housing loan. The Section 24 of the Income Tax Act states that if a property is still to be constructed, there will not be any deductions on the interest payment all of those years. The interest for the pre-construction period can be availed for the deduction in the 5 equal installments from the year the construction is complete.

 

How can one avail tax benefits from an under construction property?

• The Section 80C allows tax benefit for the amount paid towards the Stamp Duty and the Registration process. However, the tax rebate on principal repayment may not be allowed when the property is under construction.
• If there is a delay in the project and the possession doesn’t happen on the given date, one cannot get the tax benefit for the principal and the interest.
• One can avail the tax benefits at the time of filing the income tax returns.

Explanation of the Section 80C:

This Section states that, for the purposes of purchase or construction of a residential house/property the income from which is chargeable to tax under the head income from house property (or which would, if it had not been used for the assessees own residence, have been chargeable to tax under that head), where such payments are made towards or by way of;

•  Any installment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
• Any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
• Repayment of the amount borrowed by the assessee from

(1) The Central Government or any State Government
(2) Any bank, including a co-operative bank
(3) The Life Insurance Corporation
(4) The National Housing Bank

How can a second home reduce your tax burden?

 

Buying a second home for various reasons is one of the latest real estate trends. It is a source of pride for the second home owners to own another home with sufficient income and unsullied credit. Although a second home might serve you as a great asset, it is wiser to know the advantages and disadvantages before going for a second home. One has to know the reasons to buy a second home and should know if it is for investment purpose or for personal purpose.

Most people who own two homes are confused and fret on how to repay the home loan with the high interest rates. However, there are certain situations wherein they can reduce the tax liability if they avail the deductions on home loans in case of a second home.

 

Benefits of a second home:

Having a second home can result in the exemption on interest rate:

• If a home loan is taken for a self-occupied property, the principal amount repaid will be qualified for the deduction.
• However, if a loan is taken for a second home, the interest payment will be eligible for the deduction.
• If the second home is given for rent, the loan taken for the second home will not have any limit for the deduction for interest payment.
• In case the home is yet to be constructed, an amount of interest paid during the pre-construction period will be used for tax deduction. This rule is effective for five years from the time of construction and the complete possession.
• Having a second home can increase your net worth. After buying the second home, the home appreciates the value and increases the total net worth.
• Apart from just an investment aspect, a second home also serves as a luxury medium. This also provides you peace and solace away from your regular residence.

 

The deductions will be allowed on the income from the second home:

• If you have a second home and is lying vacant, you will still have to pay the rental value. The notional or the deemed income will be added to your taxable income.
• The home owner can deduct expenses, such as municipal or property taxes paid from the deemed income.
• Also around 30 per cent of the net annual value will also be allowed for deduction.
• In case you incur any loss after the deduction of expenses from the income that you earn from the property, you will have an option to set the current year’s loss against the income from property. In case your balance continues to be low, you can proceed with the loss for about eight years.

 

Save on tax:

Having several homes will give you an option to choose a particular home for the living. However, the income from this property will be treated as nil and exempt from tax even if the home is on rent. This home will have the limit of 1.5 lakh to be deducted as loan interest. Whereas, the interest on the loan taken for the other houses will have your income deducted as tax. It is advisable to choose the house with the highest loan as the non-exempt one in order to maximize the savings.

Income tax benefit of a housing loan: Section 24

 

What is a home loan?

A home loan or the mortgage is nothing but the funding for a new home by any bank or a financial institution. The banks disburse the loan to the home owner/loan seeker with few criteria.

Basically a home loan is divided into two parts; The principle payment and the interest.
All the banks disburse full amount of the loan through cheques in the name of the builder or the concerned person. However, the amount given by the banks will be paid by the loan seeker every month by ways of EMI (Equated Monthly Installments).

The principal amount which is covered under the Section 80C and has a limit of Rs. 1 lakh will be available if the person is living in a home which is taken on loan. However, the loan seeker cannot use this exemption if the home is under construction or if he/she is not staying in the home. The only exemption which a loan seeker can avail is if he/she is working in a different city and can claim the exemption on the principal amount of the home loan under Section 80C.

 

The principal repayment towards the home loan reduces the income tax:

As mentioned earlier the income tax has Section 80 under which is mentioned the home loan principal repayment deduction. This states that the loan seeker will invest in any of the avenues prescribed in the section if he/she is eligible for the deduction of a maximum amount of Rs. 100000. This also includes investments like the ELSS, PF, LIC and others along with the principal repayment of the home loan.

Section 24 of Income Tax Act and Its deduction explained:

The Section 24 of Income Tax Act covers the amount of interest payable on such capital wherein the property has been acquired, constructed, repaired or renewed with borrowed capital. The amount of interest which is paid yearly should be calculated separately and should be claimed as the deduction each year. However, the penal interest on housing loan will not be allowed as deduction. Apparently, if the purchase price of the property is paid in installments with the interest, the interest portion of the installment will not be allowed as deduction under the Section 24. In case if there is a fresh loan raised in order to repay the original loan and the new loan has been used only for the purpose of repaying the original loan, then the interest paid on the fresh loans will be allowed as deductions.

 

Tax benefit on the interest on home loan: Section 24:

There are various ways in which the interest on the home loan is treated and the Section 24 contains the tax aspects of the interest on the home loan repayment. However, the maximum limit under the section as mentioned earlier is Rs. 1, 50,000 and one needn’t stay in the home in order to claim the benefit. The amount of interest which is paid is apparently deducted from the taxable income and hence reduces the tax liability. Also, there is no limit on the number of home one can claim. The only limit will be of Rs. 1, 50,000 on the entire amount.

Which home loan repayment option suits you the best?

In competitive market lenders of Home Loans innovate variety of schemes, including repayment schemes, to suit different types of prospective borrowers to attract greater number of such borrowers and fence sitters. Some of such innovative repayment schemes are given below.


Step-up Option:- This suits the “younger generation and new to employment” most. The EMI is lower in the initial stages and increases at predetermined intervals. It substantially increases the loan amount eligibility, and lower EMI matches initial repaying capacity. In assumption of steady growth in the earning of the borrower, the EMI also increases at prefixed intervals.

Step Down Option:- It is reverse of the above and suits the borrowers who are likely to retire in near future. The EMI is higher initially and is reduced at prefixed intervals, when the borrower would have retired, thus reducing post retirement outgo considerably so that he does not feel the pinch of higher EMI.

Telescopic Repayment:- It suits the younger generation having just started their careers when the loan amount to which they are eligible is less. Under this scheme they can avail loan of higher amount by increasing the tenure of up to 30 (Thirty) years. The EMI is less and the borrower has the option to pre-pay the loan when surplus fund is available.

Tranche Based Option:- Buyers of under construction property can opt for it. Generally when there is partial disbursement of loan amount, a pre-EMI interest is charged till the entire loan amount is disbursed and regular EMI starts. Under this scheme the borrower has the option to pay EMI separately for each tranche of loan disbursed and the total loan repayment period is reduced.

Pre-EMI:- To some extent it is reverse of the above but for under construction property only. The loan amount is disbursed in parts as the construction progresses and the borrower is charged simple interest called pre-EMI. It does not include the principal component. After the full loan amount is disbursed, payment of regular EMI commences.

Accelerated Repayment:- It has the flexibility of increase in EMI amount which is otherwise fixed. It suits the borrower whenever there is an increment in salary. The borrower can also make periodic payment of additional amount, over and above the regular EMI, when surplus fund is available. In this way the repayment tenure and interest outgo can be reduced.