Having paid the booking amount to the builder for the beautiful apartment house, Anirban and Neerja were very excited. They have been searching for the dream property for last two years. Now, they were looking eagerly for the home loan to pay the balance amount to builder and take possession of house, which is just 3 months from now.
Like most people, they had not heard of home loan Insurance until they met the bank’s representative for signing the documents for their pre-approved loan. Here are some facts about Home Loan Insurance people like Anirban and Neerja should know before deciding on it.
What is Home Loan Insurance?
Home loan insurance is special type of term plan where the sum assured is so structured that death benefit at any time during the loan tenure would be sufficient to pay any outstanding loan amount irrespective of the changes in interest rate charged on loan. Like all term plan they do not have any maturity amount.
How is premium payable on Home Loan Insurance?
In most home loan insurance polices the premium charged is added to loan amount and can be included in loan’s Equated Monthly Instalment (EMI). In case you do not want to add the premium to your loan amount, the premiums can be paid on regular basis depending on the premium-paying mode chosen. Premium paying term in case of home loan insurance plan is normally 2/3rd of loan term. If your loan is for 15 years then the premium would be payable for 10 years but the cover is for 15 years.
Cartoons courtesy "Insurance Foundation of India" a NGO working on Insurance Literacy
Is it mandatory to buy home loan insurance?
No, it is not mandatory to buy home loan insurance. However, it is strongly recommended to buy one. In case there is no insurance cover and the loan payer dies, the bank will demand the outstanding loan amount to be paid. If loan EMIs are not paid, the bank has the right to repossess the property and dispose it off to recover its dues. The dependants of the bereaved have to move to some other place such as relatives etc.
If the loan is protected by home loan insurance the proceeds of the insurance policy would be sufficient to pay off the outstanding loan, consequently the family of bereaved can continue to live in the house.
Do I have to buy home Loan Insurance from bank only.
Banking code does not specify that loan insurance has to be bought from the lender. In fact, you could buy the same from any other authorised entity such as insurance broker, insurance agent etc. However, most banks insist on buying the loan protection policy as a malpractice.
Are there any alternatives to Home Loan Insurance
As discussed above home loan insurance are types of term plan. So, if the person buys the term plan it should be sufficient, provided sum assured is calculated taking into account the loan amount.
In fact, there are some advantages of buying normal term insurance plan. A lot of companies these days tend to offer lower premiums for non smokers and women. However, same benefit has not been extended to home loan protection plan.
Further, it would be worth considering additional benefits such as critical illness, accidental death, and disability benefit. They can be added to the normal term polices to provide comprehensive protection. Such additional benefits are normally not available with loan protection policies.
A home is very precious possession of any individual and one of the key financial goals. In times when more and more people are buying homes at young ages with substantial loan amounts. It would be prudent to cover your financial liabilities with low cost insurance cover. After all, last thing any person would like is to be evicted from the cherished home because of ignorance about term insurance or home loan insurance.