Home loan insurance is not compulsory When taking a home loan, a majority of lenders prefer if the borrower buys a home loan protection scheme or a term insurance. This, however, is not compulsory. The Reserve Bank of India and the Insurance Regulatory and Development Authority of India have clarified that banks cannot force clients to buy insurance as a condition of loan sanction.
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How home loan insurance works A home loan insurance policy ensures that the lender still gets their money back in the event of death during the term of the loan. Home loan insurance works in the same way as a term insurance and ensures financial security to the deceased borrower's family, so, instead of worrying about loan repayment or losing their house at a difficult time, the insurer is able to pay the outstanding amount to the bank, thanks to the insurance policy. It can bring peace of mind to those who would like to have the assurance.
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How home loan insurance works A home loan insurance policy ensures that the lender still gets their money back in the event of death during the term of the loan. Home loan insurance works in the same way as a term insurance and ensures financial security to the deceased borrower's family, so, instead of worrying about loan repayment or losing their house at a difficult time, the insurer is able to pay the outstanding amount to the bank, thanks to the insurance policy. It can bring peace of mind to those who would like to have the assurance.
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Why a regular term plan may be more appropriate Instead of purchasing home loan-linked insurance, you can choose to buy a regular term insurance policy with adequate cover. Term insurance policies are relatively affordable, flexible, and still offer protection after loan payment. Unlike home loan insurance, where coverage is reduced as the loan amount is paid down, term policies offer a guaranteed sum for the selected term, with greater overall cover.
Factors to consider before deciding Although home loan insurance is voluntary, you need to make a choice based on your financial situation, dependents, and existing life insurance cover. If you already have a term plan with sufficient cover to take care of liabilities, then additional home loan insurance is not needed. But if you have no life cover, then insurance purchase—in the form of a loan-linked policy or a term plan—is a smart decision to safeguard your family.
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Informed decision making protects your home purchase Home ownership is a long-term financial investment, and protecting that asset is important. While lenders are not permitted to require you to buy insurance, it is always advisable to have adequate life cover in place so that your family is not left financially disadvantaged due to unforeseen circumstances. With a stand-alone home loan protection policy or a term life policy, the appropriate cover can provide you with peace of mind for the long term.
