Is Home Loan Insurance Compulsory for a Home Loan?

When applying for a home loan, a lot of people in India feel confused regarding whether they should buy home loan insurance and is it a mandatory requirement to get home loan approval. If you too are planning to apply for a home loan soon, you must have a clear understanding of the subject.

Neither the Reserve Bank of India (RBI) or Insurance Regulatory and Development Authority of India (IRDA), has made home insurance compulsory for home loan applicants. In fact, as per RBI’s updated guidelines regarding home loan insurance, banks and lenders cannot follow restrictive practices of forcing a customer to choose a specific insurance product or company or link the sale of such product to any loan.

The mandate also states that the lending organisations must clearly communicate and mention this information in all their publicity materials so that the customers are aware of the fact that purchasing home loan insurance is voluntary and it will have no bearing on availing any kind of loan facility.

If the lender that you approach asks you to get home loan protection insurance, you must keep the following points in mind:

• Internal guidelines

If the financial institution asks you to compulsorily purchase a home loan insurance before approving your home loan application, it will be based on their internal policies. They cannot claim it is necessary as per IRDA or RBI mandate.

• You have full freedom to choose

If the lender that you approach to get a home loan insists on buying a home loan insurance policy, you have the full freedom to purchase the policy form any home insurance company of your choice.

• Compare the policies

When you buy a property insurance for a home loan, it is paramount that you don’t blindly believe everything that the home loan provider says about buying an insurance policy with them. Instead, take your time to compare the policies offered by different insurance companies and choose the one that best suits your needs and budget. The premium for the policy that you choose must be affordable and it should provide maximum coverage.

 

What is home loan insurance?

Home loan insurance policy is a type of insurance that gives you coverage against the outstanding home loan liability during unforeseen circumstances such as job loss, untimely death, disability, etc., that may affect your ability to repay the loan.

Availing a home loan protection insurance policy ensures that your family members don’t get burdened with repaying the loan if something happens to you. In such a situation, the insurance company will settle the balance loan amount with the lender. The policy ceases to exist once you repay the full amount or after your demise.

Is a home loan insurance policy required?

The lenders offer housing loans to you with the intention of making profit through interest payments. However, if you fail to repay the EMIs on time, the lenders face the risk of losing out their money. In such a situation, home loan insurance gives them financial protection and an assurance that the balance amount will be repaid.

From a borrower’s point of view, home loan insurance is important for you too as it protects your family from bearing the burden of loan repayment if an adversity strikes. Thus, since home loan insurance benefits both the lender and the borrower.

Important factors to consider while buying home loan insurance policy

• The premium and the coverage of the loan insurance policy usually varies based on the term and condition of the policy. You must carefully compare the different policies and find the one that caters to your specific insurance needs.
• The premium you pay for home loan insurance is usually a percentage of the home loan amount sanctioned to you and you must pay the amount annually.
• These home insurance policies usually have a maximum coverage limit, which is equal to the loan amount you borrow.
• You must purchase the home loan insurance policy based on your age, occupation, health status and dependent family members.

 

To Conclude

So, it is evident that having home loan insurance is not a mandatory requirement but it is better to have one to keep your family safe from repaying the amount if something untoward happens to you. Make sure to consider your needs carefully before buying a home loan insurance protection plan to get maximum benefit from it.

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Simply visit www.indiashelter.in and then apply for your home loan with a single click or just call on this toll-free number: 1800-572-8888