How to Use Life Insurance to Buy a House?

Long-term investments are safe and versatile, like life insurance plans. If you have been investing in any of your long-term investment plans, including a life insurance policy, you can use the corpus for another asset, i.e., a house.

Home is one of the essentials for life. Thus, home buying could be a financial goal you’d like to achieve in your life, and the sooner, the better. Not only that, but the house is also a long-term asset, which grows in value gradually and can even become a source of funds in your retirement. In this blog, we will explain how you can use your life insurance policy strategically to buy a house.

You can use your life insurance policy’s cash value in two ways:

• Surrender the policy.

• Borrow from the policy.

If you surrender the policy, you will get 100% of the cash value of the policy. However, the policy will cease to exist, and you may lose a chunk of your life cover.

Borrowing from the policy will give you only 80% of the cash value. But it has other advantages:

• Low rate of interest rate on the loan.

• The policy continues, and you will still receive the balance maturity value.

• Life cover continues.

• You can repay the money for the policy and enjoy an even lower outflow towards interest payments.

Remember, the cash value of the policy is only a fraction of the maturity value. So, it does not make much financial sense to surrender the policy in the final few years, as you may lose a larger chunk of the bonus additions that are payable on maturity.

Learn: 5 ways to cash out a life insurance policy.

When to Use the Policy Cash Value?

You should use your policy's cash value only under the following circumstances:

• The policy will mature after more than three years.

• You cannot withdraw from the policy.

For Example, suppose you’re planning to buy a house and need funds for a down payment. If your life insurance policy allows partial withdrawals (as in ULIPs), and those withdrawals can meet 80% or more of your financial requirement, there’s no need to touch the cash value.

However, if the policy does not support withdrawals and maturity is far away, accessing the cash value may be your only feasible option. Just remember, surrendering the policy close to maturity might mean losing accumulated bonuses, so weigh the decision carefully.

How Can You Fund Your Dream House?

Here are the two possible ways, i.e: 

• Define the goal and start investing now.

• Use your existing investments to achieve the goal.

Let's discuss each of them in detail. 

Defining the Home-Buying Goal:

The home buying goal is so flexible with several options that you have to sit down and make notes, and perhaps you should. However, for the sake of simplicity, let’s just take one scenario:

• You want to buy your first house, and you want to do it as soon as possible”.

• You can either buy a house using a bank loan or buy a house completely out of your pocket; that will be your choice. However, in both cases, the value of your dream property will define the financial goal for you.

For example, if you wish to buy a property that costs ₹ 60 lakhs today:

• if you want to buy out of pocket then ₹ 60 lakhs + 12% of ₹ 60 lakhs (approx. ₹70 lakhs) should be your financial goal,.
  

• If you use a home loan, then 20% + 12% of ₹ 60 lakhs (approx. ₹ 20 lakhs) should be your goal.

Using Existing Life Insurance Policies for the Goal:

Life insurance policies like unit-linked insurance plans and endowment plans acquire cash value as you continue investing in these policies. So, if you started a policy 10 – 15 years ago, the policy may have acquired enough cash value to help you achieve your home-buying goal.

If not, you can continue investing in the policy and also start a new investment to achieve your goal. Life insurance plans like endowment and money-back plans acquire higher cash value as they near their maturity.

However, in case, which is very likely, you do not have a long-standing life insurance policy in your portfolio, you can start investing today.

Invest in a Life Insurance Plan for Home Buying Goal

Investing in a life insurance policy to meet a large financial goal is nothing new. You can use life insurance plans to meet important and large financial goals, such as higher education for your child. So, the home-buying goal should not be too different.

However, you would like to expedite the home buying goal, even with a new investment route. And before you go on investing, here’s why life insurance plans could be the best instruments for this goal:

• Additional life cover, i.e., additional financial safety for your family.

• Only investment plans with an option to protect the goal.

• You can invest both aggressively in equity and play safe with guaranteed plans.

• Tax-saving on invested money and tax-free maturity value.

So, here are a few investment plans you can consider:

Unit Linked Plans – Invest Aggressively or Play Safe:

Unit-linked insurance plans or ULIPs are versatile investments that let you invest in a mix of equity and debt funds. You can also choose to invest only in equity funds or only debt funds, depending on your risk appetite and preference.

Here’s how the Promise4Growth Plus ULIP by Canara HSBC Life Insurance supports equity investors:

• Manage your portfolio risk automatically.

• Use automated strategies to always benefit from market movements.

• Bonus additions for long-term investments.

• Switch anytime between funds.

• Automatically and systematically transfer your equity portfolio to debt in the final few years of the policy.

• Partial withdrawals are allowed after a five-year lock‑in period in the policy.

Protect your home purchase goal for your family from your untimely demise.

iSelect Guaranteed Future Plus plan:

Here’s how the iSelect Guaranteed Future Plus plan by Canara HSBC Life Insurance can support your goal of buying a home:

• Get guaranteed returns to plan your home purchase confidently.

• Use policy loan options to arrange a house down payment when needed.

• Choose payout options that match your home funding timeline.

• Add premium protection to ensure your savings continue even in your absence.

• Enjoy life cover and add-ons that secure your home goal for your family.

Conclusion

Buying a home is a major financial goal, and the right life insurance plan can help you achieve it with confidence. Various investment options offer the perfect blend of growth, protection, and flexibility. These plans grow your savings, secure your loved ones, and ensure your home-buying dream stays on track. Start today with Canara HSBC Life Insurance and move one step closer to owning your dream home.