One product in life insurance, which has been in existence for some time and was under-exposed until the privatisation of the sector is the loan term cover. It is an Insurance plan, which can help you take care of your existing liability in case of your unfortunate death.

LIC has had this loan term cover for quite sometime, but it can be linked only to one's housing loan liability. Moreover, this loan term cover offered by LIC can only be linked to housing loan from by LIC Housing Finance and not any other financier.

Recently, HDFC Standard Life Insurance Company also came up with the term insurance cover. This is different from the cover offered by LIC as unlike LIC this can be attached to other liabilities in addition to one's housing loan. Secondly, this loan need not necessarily be from HDFC or LIC housing finance company but could be from any other financier.

The loan term cover is ideal for policyholders who have some liability in one form or the other, particularly housing loans, which are long-term commitments. Under the loan term cover, in case the policyholder dies during the policy period, the liability is taken care of by the insurance company.

Lets take an example of a person who has taken a housing loan of Rs 1 million (Rs 10 lacs) for 15 years and along with this takes a loan term cover of an equivalent amount. Now if this person were to die anytime during the policy period, his outstanding liability would be taken care of by the insurance company and his house would be freed from mortgage. If this loan term cover were absent, his survivors would have to pay the EMI (equated monthly installment) in his absence or pay the outstanding principal to release it from mortgage. In the worst scenario, the house could be auctioned and the money recovered.

If this cover is not available, the survivors would have to arrange the funds to pay the financiers. Alternatively, the house would be auctioned and the outstanding money would be recovered by the housing finance company.

Policyholders (existing ones and potential) who have some liability in the form of mortgage and hypothecation need to secure themselves by taking the loan term cover as ultimately someone has to pay the liability. By taking this cover, you will have taken care of the liability yourself and freed your family of the care and worry of providing for it in your absence.

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