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Risk Cover
With banks and insurance companies tying up, home loan seekers can now buy peace of mind as well. A look at how it works~ Chandralekha Tulal
Easy term home loans have made millions realise their dream of having a house they can call their own. But what if destiny has willed that you wouldn't live long enough to savour the satisfaction?
The walls crumble around your family, right? Not any more.
The frightening prospect of leaving your young family without a roof over their head can now be avoided, thanks to life insurers who help you insure the loan you have taken. Banks, too, are pitching in, with many tying up with insurance companies to offer home loans and loan insurance as a package.
You just need a bit of foresight, that's all, and—of course—the willingness to part with a little extra cash.
Arijit Moitra had the foresight.
Moitra was 31 when he and his 27-year-old wife, Preeti, decided to move into a bigger house. Life was a breeze for the MNC executive and the young housewife. Their four-year-old daughter, Ridhima, had just started going to school and the couple was planning to grow their family.
Moitra decided to take a 20-year home loan of Rs 35 lakh. For five years, everything was smooth. Then one day, a road accident ended the bliss.
Emotionally shattered, Moitra's family was saved the trauma of being homeless. His foresight in opting for a home loan insurance policy at a nominal premium helped his family keep the roof over their head.
Under the home loan insurance scheme, if the life-assured dies during the term of the plan, the insurer covers the outstanding liability of the home loan.
While calculating the premium—which can be paid monthly, quarterly or once a year—the age of the assured and tenure of the plan is taken into account, as in an endowment plan. But unlike an endowment plan, where premiums are high, term assurance plans have very low premiums as they cover risk to life only and do not have a savings component.
In other words, no benefits if the insured person survives the plan period. Not even the premiums paid.
If the individual has the option to go in for a return-of-premiums plan, the premiums would be given back at the end of the term. But as it would ultimately increase the premium outflow, it might not be a smart move. After all, the whole idea is not to strain your resources. It's your family, which would suffer.
Some tips before taking the cover for your shelter:
Look carefully at the credentials of the insurance company, including its past performance in paying up claims, and product specifications
Check out the premium amount and the payment tenure
It's more convenient if the lender institution already has a tie-up with an insurance company.
Life risk cover is not the only scheme on offer from the insurer's stable. Insurance companies now have another add-on cover, under which if an individual loses his job, the company bears the EMI burden for some specified months. For example, Bajaj Allianz offers to pay the EMI for three months. However, this comes at an additional cost and depends on whether the insured wants to opt for it or not.
If insurance companies are pampering the average homebuyer, so are banks. As most of them have tie-ups with insurance firms to offer home loan and the insurance as a bundled product, banks and financial institutions now offer the first premium along with the loan amount.
For example, State Bank of India has a tie-up with SBI Life Insurance for the home loan insurance scheme and with New India Assurance for personal accident cover on the home loan.
Under the scheme, the bank includes the one-time premium payment charged by the insurer within the loan amount and the customer has to pay that as part of the EMI. But the insured person has to pay the applicable rate of interest on the premium amount also.
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