It was recently that I purchased a home by taking a home loan. I was made to (or better to say "forced to") take a home insurance also, along with my home loan. Now that policy detail was not shared with me earlier by the home loan providing bank, rather I was simply asked to pay for that insurance without much of discussion. So there it was - I had to get a demand draft for the home insurance premium and give it to my home loan provider bank, and the bank person would in turn pass it on to the insurance provider company who would then issue the policy for "securing" my home from all (??) kinds of calamities.
But then, even after paying for the insurance premium, I had no idea of what I was paying for (nor did the bank personnel seem to have, as whatever I asked him, he just kept turning down my questions by saying - Since you are taking a home loan, this home insurance policy is essential)
Home Insurance Policy: Truth, Details & Requirements of Home Loan Insurance Policy
So, after more than a month of home loan disbursal, I got the printed copy of my home insurance policy which was essential for my home loan. And there the surprises started.
Let me detail somethings which came out after a few follow-ups with the insurance company, about the truth of home insurance.
First, my observations about my own home insurance policy.
The first shocker was the one about the SUM ASSURED for my home insurance, and that's where I got into q and a's with the insurance company helpdesk.
The price of my purchased home was, say X. Add to it the registration and stamp duty cost, and the overall price rises to X+12%. Out of this, my home loan amount was only X*65% i.e. around 2/3rd of the total home price.
What was interesting is that I took this home loan for around 10 years, and was forced to buy home insurance policy for a tenure fo 10 years (i.e. loan period) by paying a one time premium, yet the sum assured amount mentioned on the policy document was only aroun 40% of X
So, if my home was of say, 50 Lakhs total cost, the insurance policy which was forced onto me was having the sum assured only as 20 Lakhs. So what is the actual worth of my insurance I'm forced to purchase???
I logged a query with the insurance company and that is what they came up with.
Irrespective of the amount of total money you pay to buy your home, irrespective of the amount of home loan you take, your home insurance policy ONLY covers the cost of construction for your house. i.e. in case something goes wrong with the flat due to say any natural calamity, then the home insurance policy only covers the cost of reconstructing that property.
It is in turn dependent on the area of construction (usually the carpet area) and interestingly, the locality where your property is located.
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Although it sounds absolutely logical to take the cost of construction (hence insurance value) to be a factor of the carpet area, but it makes no sense to make it dependent on the locality within the same city. How will the cost of construction change significantly if the area is under the same city?
Although I've been insisting on the insurance company to give a written confirmation on this to me through email - they are trying to avoid it. Even though I've asked them explicitly to provide a written response through email, they simply call on my mobile and avoid putting the answers in writing.
Related: Home Loan Tax Benefits and All Home Loan Articles
So, there is nothing much that an individual can do about the choices he/she has for home insurance. The moment someone takes a home loan, he has to purchase some or the other stupid policy in the name of coverage. Some banks force only property insurance, some also force life insurance that too in favour of the home loan bank. With the property papers lying in the custody of the home loan provider bank, the home itself is the biggest security for the bank against the loan it has provided. So why should there be a force on the home insurance or life insurance?
Something for the authorities to think about and come to the rescue of the individuals.
2 comments:
All in one, i want to know whether home Loan insurance is mandatory or not? If it is not, they I strongly avoid...
Please guide and give some proof if anybody has.
Hi Riken,
Thanks for your question.
Whenever you take any home loan, the home loan provider bank (or NBFC) might force you to take one or more insurance - that might be the case for Life Insurance of the loan borrower, home insurance for the purchased house, and so on.
The reason for they "forcing" you to buy these insurance are as follows:
1) They are giving you money in the form of loan. They want security in some form, both for the home loan borrower and/or for the home
2) They get commission when they sell such insurance policies, so that is another stream of revenue income for the banks
Now, what all insurance (one or many) you are required to buy depends solely on the bank which is offering you the home loan. If they say you need life insurance, home insurance & medical insurance - then you have to take all the three.
Most of the home loan offering banks force borrowers to take 2 insurances - life insurance and home insurance
Some banks do allow only one insurance - that may be either life insurance or only home insurance.
So ultimately, it all depends upon the bank giving you money. They are giving the money, so they are free to dictate what they want. :-)
However Sometimes, borrowers might be able to negotiate with the bank. That is the case typically observed in cases of say corporate tie-ips, like XYZ bank is offering no charges or processing fee or insurance requirement for employees of ABC company.
Or, at individual level, say a person X has a salary account with XYZ bank, and on that basis they dont demand insurance from him.
So it all is under bank's decision.
To see more on Home Loan related Tax Benefits, please check Home Loan Tax Benefits and All Home Loan Articles
Thanks
FT Times
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