First I thought the title of this article should be “Home Loan Insurance – Daylight robbery” – so you can imagine what I am trying to say.
Most of us wish to have a home in our own name. From a financial perspective, it is a big step and a huge investment that all of us cannot make on our own. We, therefore approach banks for loans. Banks are in the business to make money and will try to upsell or cross-sell products. Some banks offer a home loan insurance protection plan when you apply for a loan. Some banks claim it is compulsory to buy insurance along with a home loan. Some banks claim they cannot issue a loan if the customer does not buy insurance. Sometimes customers are desperate and sometimes ignorant and they end up buying unnecessary products.
Image courtesy of jesadaphorn at FreeDigitalPhotos.net
Read – 5 insurance policies that you may not need
But here are some reasons as to why the offer of home loan insurance may not be in the best interests of the customer –
Home Loan Insurance is Very Costly –
The home loan insurance plans are sold along with the home loan with the reasoning that in case of an unfortunate event of accident or death of the borrower, the remaining loan will be paid off with the sum assured and the dependents can be covered from financial worries. But a term insurance plan serves the same purpose. You buy a term insurance plan and your dependents get the sum assured in case of an unfortunate event and the sum assured can be used to pay off loans as required.
Let us compare the cover provided by ICICI Loan Protect Plus with a 7 year fixed moratorium and ICICI Term Insurance for a 35-year-old male with a sum assured of Rs. 50,00,000
|Parameters||ICICI Pru Loan Protect Plus||ICICI Pru iProtect Smart|
|Premium||Rs. 50,157 (excluding service tax and cess) p.a. for 5 years||Rs. 7,100 per annum.
|Premium Comparison||For 5 years, you pay at least Rs. 2,50,875.
You cannot stop paying it as if you do not take the one-pay option, the premium will get included in the EMI.
|If you consider the sum of Rs. 2,50,875, you can pay a premium for term cover for 35 years. Usually, a person will not take a term plan for so long and has the flexibility to stop premium payment whenever appropriate.|
|Features and Benefits||If the accidental death benefit is taken for a policy of Rs. 50,00,000, till the 7th year, Rs. 50,0000 for life cover and Rs. 50,00,00 for accident benefit will be given.
Premium can be paid either once or yearly.
|Covers death, accidental death and permanent disability
Covers female organ cancers
Benefit amount is payable as a lump sum or as monthly income for 10 years
There are different premium payment options.
There is option to surrender the policy subject to some terms and conditions.
It covers the insured irrespective of the loans taken. You can easily port your existing loan to another lender without the insurance being affected.
|Death Benefit Payable||In case of natural death in the first 7 years, it is Rs. 50,00,00. It will keep reducing from then on –
10th year – Rs. 43,60,000
15th year – Rs. 11,30,000
|The death benefit is equal to the sum assured – Rs. 50,00,000|
|My View||Benefits in the Loan Protect plan get reduced from 7th year onwards else you have to take a fixed benefit policy which means paying a higher premium.
It is expensive compared to the term insurance plan.
Home loan protection and home loan are tightly linked. It will be difficult to port the loan if you have taken insurance without foregoing the insurance. In a term plan, you will have no such limitations on the insurance or on your loans.
Interest payable on premium –
If you do not opt for the single pay premium, the premium gets included in the EMI which has components of principal and interest on the loan amount and you will end up paying interest on the premium amount too. Moreover, you will lose out on tax benefits on the premium paid.
Closure of home loan –
Home loans are usually closed before the full tenure. People pre-pay the home loan. If you take a 5 year home loan and a Home Loan Protection Insurance Plans for the same tenure and pay off the loan within 3 years, you will not get back the premium paid till now.
People also port the home loan from one lender to another. There can be issues related to porting if home loan insurance is involved.
Home Loan Insurance is different from Home Insurance or Property Insurance –
Property insurance covers the property against risks to property like fire/earthquake.burglary etc. But home loan covers insurance the risk of default in repayment of home loans. Some people might get confused between these two types of loans and end up buying the wrong insurance.
Read – What bankers can do Mis-sell Insurance?
If your bank asks you to purchase a home loan cover for the home loan, you can –
- Inform them that you know that it is not mandatory to buy home loan cover insurance to get a home loan.
- Ask the bank to give a written document that home loan cover is mandatory to get a home loan. Since it is not mandatory, the bank will not pressurize you to buy it.
- Reject the loan even if you really need it. The bank needs the business. It will come back to you asking you to take only the home loan and not the insurance cover.
- Inform the bank about the term plan that you have or intend to buy which can cover the loan payment default if any
- Escalate the matter to higher senior management in the bank. This will help in having written proof of the conversation and also change the offer from the bank.
- Escalate the matter by filing a complaint to the Banking Ombudsman following proper procedure.
It is important to protect your dependents financially. But it is equally important to get the right kind of protection. You should understand the financial products properly before buying them. Let us know if you have faced similar issues when you had to go for a housing loan and how you managed it.
Still, if you have any doubts about Home Loan Protection Insurance Plans. You can add them to the comments sections.
Very useful information. Thanks for the valuable guidance.
[Personal Experience – Could not make the institution not force me to take the loan without an insurance]
Thank you once again for the article. I have had a similar experience with home loan providers. I kept denying and none of the financial institution came back. The market situation and emotion is different as we approach for loan only when there is a pressing need and do not have enuf time to react.
In my case, after denying the major competitive institutions i was left with none and eventually have to settle down with an home loan insurance coverage. Unless RBI controls and circulates the policies that abides to all, we are at mercy of these institutions.
I had taken home loan protection plan along with HDFC home loan. It is getting deducted in EMI. Shall i ask bank that i dont need further insurance , so that my EMI gets reduced?
Wow, really an eye-opener. Thanks for this excellent info.
This helps us to be careful while approaching for housing loans with financial institutions.
I read your article very nice but needs more comparitive information by including other 100% Loan Guarantee Lowest Interest Rate & Instant Approval Nationalized Banks.We are Profession All Kind Of LOAN providers For Home Loan,Housing Loan,Construction Loan,Mortgage Loan,TakeOver Loan, Loan Against Property (LAP),TopUp Loan,Site Purchase Loan,DTCP Approval,CMDA Site Loan,( And )an For Cibil Defaulters ( Loan Rejected )( Loan Problems )( Low Salary Profile )( Loan Denied )
Thanks a lot for this article…read this at just the right time…was about to apply for a home loan insurance today…felt like going though the internet for some advise and bingo !!! got he link of your article..
Till now bank person has not mentioned anything about the insurance to me..not sure what is going on…
Thanks Ranjan ?
Thank you for your suggestion. I rethought on buying home loan insurance.
Good to know that this post helped 🙂
I also taken loan from SBI and they sold me the insurance but somehow i managed to pay it by cheque at last moment. This year also they called me to deduct from my saving account but i refused. Hopefully i saved remaining 4 premiums of this insurance. Since it also passed the grace period so i want to know whether they can force me to pay premium at this moment?
They can’t force you but you can take term insurance to cover this liability.
PNB Housing Finance is adding approx 2.65L for Insurance premium. They are not willing to agree with my request to not include that. What can be done?
@Hemant Beniwal, great coverage. Helps a lot to plenty of users though very less acknowledge them.
@ Kartik Nadar, I would advise you to cancel the insurance policy (you can do this as per policy) within 30 days when policy gets issues and you will get complete premium in return..
I have opted for a home loan in axis bank they r saying it is mandatory to have insurance for taking loan . I want 70 laks of loan if it’s compulsory to take insurance then how to proceed nd protect from unnecessary charges nd if insurance is not compulsory then wat to do
Ask them in writing.
I think u r too harsh on financial institution, which offer home loan insurance, because
1. Future is uncertain, if there is only one bread earner in a family, who is paying home loan EMI, if something happens to him, like (death), no one wants to vacate the home, due to that person death. Anyways if he have insurance, the insurance company will assure him to repay the loan.
2. It will make the lender and the client both safe…
Is it not right? Is it a worst product?? I don’t understand your logic!!
I agree with your point “future is uncertain & we should have insurance to cover liability”. But why pay Rs 5 for something which is available for Rs 1?
I am not sure if you have read the article. I have suggested a better alternative from the same financial institution.
I agree Karthik – while I totally believe in Caveat Emptor and I appreciate that Author is sensitizing the readers about malpractices that some institutions (or rather the sales people) may be following, it is not as one sided case of Home Loan Insurance being the worst product as brought out by author. And the price difference is certainly not 1:5. These Home Loan Insurance Products are slightly more expensive because these are Group Insurance where buyers of these insurance products becomes a part of Group Insurance taken by the Home Loan provider. There are multiple advantages of buying a part of Group Insurance – namely no medical checkups i.e. no individual underwriting, immediate and hassle free loan settlement in case of an unfortunate event (that’s what matters the most when one needs it), high claim settlement ratio (don’t have a fact to prove it – but one can understand that all banks are keen to cover their loans first), critical illness rider for a longer period, permanent disability rider etc. Many banks are also able to offer competitive interest rates because they are able to sale insurance along with it.
Also if one opts for a one time payment of premium, the premiums have time value of money built in it. Banks’ interest in the loan taker going for one time payment premium is that they want to ensure that the Loan taker is fully insured for the time period of loan – Banks are kind of protecting themselves.
Finally, adding the cost of premium to EMI, over and above your sanctioned loan limit, makes an expensive insurance product in the reach of the buyers who are generally overstretched at the time of buying their property. And this is one of the key reason that many home loan takers should evaluate this product instead of end up postponing their decision to buy insurance, at their peril.
I am also told that loan porting is allowed under some of home loan protect plans in the market.
Therefore, the smart step should be that one should obtain all the details about the Loan Protect policy being offered by the bank much in advance (banks sales people have a habit to push it at the last moment and create urgency around it) , and call up an insurance adviser/ competing insurance firms/ check online portals to understand what product serves their need the best and then go for that insurance product. Also one may go for a shorter duration Loan Protect policy – say 8 – 10 years if the loan is for 15 years. BUT DO COVER YOURSELF – DON’T REMAIN UN/UNDER INSURED
Thanks Manish for sharing your views.. I may not agree with your observations but that’s fine..
That’s a good piece of information. Thank you, Hemant.
I have a situation here, I have got a loan sanctioned for 30L from PNB and the associate insisted me to take the insurance. He did not mention anything related to the insurance written. Now after reading your post, I spoke to him if he can cancel the insurance. PNB says they cannot at this point of time as the cheques have been prepared.(On me further insisting to cancel, they also told that it would be a bad remark on them. Hence cannot cancel the insurance.) They are yet to respond. Please suggest how can I deal with them.
“Bad remark” is just a selling technique for financial institutions. Remind them they are in the business of providing loan – not selling insurance.
Alright. Thank you
Please send them a written mail saying I don’t want to opt for any insurance and they have to then go by that.
Verbally they will always try to enforce you to take the insurance. Ensure that you are putting the higher official’s in mail chain.
I had got sanction of Home loan from Mutthut Home finance of Rs. 1330000/- & they are adding insurance premium of Rs.97801/- in a loan amount which will be recollected through EMI. I requested them to not add the Premium in loan amount but they are not ready also not giving proper information whether it is a single premium or should be renewed after some year. I also told them that I will buy it from other insurer but they are saying that they have tie-up with HDFC & I have to buy HLPP from them only. But I thinks the premium of Rs.97801/- for Only 1330000/- Loan amount is on very higher side. So kindly advise me what should I do & is there any wayout to reduce premium.
I have taken 35 L housing loan last year. However i have not opted for any Protection insurance plan. My EMI is 36K.
What would you suggest for my situation?
I have recently applied for an home loan with DHFL of 60lacs and its in final disbursement stage. Now they have forced me to buy home loan insurance and home insurance of worth approx 1.5lacs and saying that they can’t disburse the loan without insurance. I have no choice except to agree on their condition since have to made payment to seller for flat purchase.
Would like to know if I can cancel the Home loan insurance on later stage but confused since I heared that only life insurance and health insurance have free look period of 15days wherein someone can cancel the insurance and request for refund. Appreciate if you could suggest on this urgently?
Sir, I am planning to take Home Loan from HDFC LTD. approx Rs.10 lacs, please suggest which insurance policy is best to be taken to cover home loan. HDFC is suggesting HDFC ergo HOme Surkhasa Plan.
I am 40 years old and purchased a Home by taking Loan from HDFC bank for 24 Lakhs for 12 year tenure, Bank personnel asked me to buy Home loan insurance for 1.85Lakhs for 5 years which covers all incidents. I refused to do so, I just asked them for loan.
Can you suggest me any insurance which will give risk cover and money back for a definite term untill my home loan EMI ends
Hi , I have recently applied for loan in private housing fiance bank and loan amount got sanctioned but after the agreement of home they asked me to get home loan insurance at the same day else it will not go ahead.
I was helpless at that time and got the insurance policy but after reading this article i have asked the to cancel this insurance policy and raised request within free look period.
But bank denying it and pressurising me to go with same policy. I requested them and also explain I can attached my own term life insurance plan to insure home loan amount but they and not listing and forcing me to keep same home loan protection plan .
Some amount of loan amount is already credited to builder so in this case can they hamper my home loan and Can i still have chance to cancel there group insurance policy and attach my own policy. Please reply asap. Thanks in advance.
Hi i have applied for a loan from hdfc home loans. Person from hdfc had called me a month ago and informed me that your roi will be xyz and insurance will be mandatory in your case. I was in a meet so I said ok and disconnected. Now i thought during the time of 1st disbursment i will inform these people that i dont require any insurance, so now as per them as i have said YES a month ago over the call so now the file is approved and now i have to opt for it or else they will reject my file and I wont be getting any refunds on the same. So now where can i complaint regarding this or else if anybody can help me the mail ids where we can complaint. In need of a swift response.
Hi, I have taken home loan 7 months back. Unknowingly the insurance is also included as part of the loan.
I am realizing now, that the insurance amount is very huge, almost 3 Lakhs for 60L loan amount.
Can I cancel my insurance now, as my EMI is already started since 7 months.?
Or transferring loan to some other bank, by removing insurance is possible?
Nice article n study report Mr Hemant. Thank you for your bringing this out to share with public.
While I agree to most of your parameters, I would like to highlight inherent limitations of Term Insurance products.
As other fellow commentators here have already pointed out limitations of term insurance, amongst all Term insurance generally has sum insurance restricted to a certain specified lower limit in case of critical ailments diagnosis or treatment (eg. Even if your term insurance is of say Rs.1 crore, critical ailment will have capping of say Rs.25 lacs which includes various ailments with varying sub-limits).
Thus, term insurance cannot completely take care of your liabilities in case of survival.
In such a situation, I would rather suggest to go for combo i.e. TERM (full coverage of your life risk which could even be greater than borrowings) + HLPP (to cover specific uncovered risk n at reduced amount). I this is wise call. I will like to invite comments of others on this.
I had taken an ICICI bank loan on my flat purchased in 2016. The bank person somehow added ICICI Home Protect insurance by saying me that it is one time premium. The premium is 73000 rs and when ever you repay/prepay the loan full amount will be given back to you. I trusted him but the mistake i did is I did not ask for any document related to policy terms and conditions. I somehow prepay the loan a few days back and when I went to get the refunds at ICICI prudential Insurance office the person processing the refund gave very casual reply that they will give only 30% back of full premium paid. Somewhere I felt cheated by ICICI bank. So guys beware of these people.
Sorry to hear about your experience.
Bajaj Finserv added a Loan security policy with my Home Loan. For that policy they paid a single premium of around 3L. But I need to pay around 3.5K per month (For 10 years) to Bajaj. That EMI will go separately, and not included in home loan.
Home loan EMI and Insurance policy EMI will start in March. I just received policy document. This is a worthless policy for me, as I already have lot of policies. Also, it is very costly.
I do not want this policy. Do I have any options, or I am doomed?
Comments are closed.