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Is Taking Insurance Mandatory with Home Loan?

Is Taking Insurance Mandatory with Home Loan?

Is buying life insurance mandatory for a home loan? The question troubles many and there is a lot of misinformation regarding home loan insurance floating in the market. Let’s find out the answers.

No, it is not mandatory to take insurance for a home loan. There is no compulsion from the Reserve Bank of India, or IRDA to get life insurance to avail a home loan.

However, it is strongly recommended to take home loan insurance.

Why Do Lenders Insist on Getting Home Loan Insurance?

Despite being not mandatory for users to buy life insurance for getting a home loan, lenders often insist on buying one. It may sound a bit forceful on the part of lenders, but it is done to safeguard the interest of both the borrower and the lender.

Since a home loan is a big-ticket loan with long repayment tenures, a borrower needs to allocate a significant part of his/her income towards EMIs. And, in case, if something unfortunate happens to the borrower, the entire liability of home loan repayment falls on the family, which is not an ideal situation.

Therefore, to protect the family from such unforeseen circumstances that can impact their financial stability, as well as, to protect self-interest, i.e, to eliminate the risk of loss from such cases, buying a home loan insurance is insisted upon by the lender.

The home loan insurance takes care of the remaining outstanding home loan principal amount, and the borrower’s family gets to keep the ownership of the property.

Please note that home loan insurance protects one’s family from having to repay the home loan only in case of death of the primary borrower. The insurance does not offer protection against other circumstances such as loss of income, disability, terminal illness, and so on.

Do I Need To Buy Home Loan Insurance From The Lender Itself?

No, there are no compulsions to buy a home loan insurance from the lender. If you are getting home loan insurance at a lower cost compared to what your lender is offering, you can buy it from that insurer. However, if the lender is offering you insurance products from well-known providers, you may want to consider it.

Can I Get A Home Loan Insurance Refund?

As home loan insurance is a form of a single premium term plan, you cannot get a refund. However, if you have got a better deal, you can return the policy within the first 15 days of the free-look period. The insurer will make the refund after making the necessary deductions. Before canceling the policy, you must buy another home loan insurance from another insurer.

Is it better to take a single premium or annual premium payment home loan insurance? It is cost-effective to buy home loan insurance on an annual premium payment mode. In lump sum mode, the premium is charged for the entire repayment tenure, while most of the borrowers prepay the home loan early as and when the funds are accumulated.

Summing Up

A home loan plays a key role in helping you to buy your dream house. While no lender is going to force you to buy one, it is strongly recommended to do so as it protects your family from unforeseen circumstances.

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