Does the lender require you to purchase an insurance plan before sanctioning a home loan? Here’s what to do

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It is essential to take out insurance so that the responsibility for the repayment of the mortgage does not fall on the members of the family in the event of the death of the borrower.

When you’re about to make the deal with your banker for a home loan, the lender may ask you to take out a life insurance policy. However, remember that the subscription of a life insurance contract is not compulsory at the same time as a mortgage. Even though it is preferable to have an insurance policy to cover a liability of the nature of a home loan, it is not mandated by any authority to obtain the cover. The insurance policy offered by the lenders is the term insurance plan which comes with low premium and high coverage.

As a home loan borrower, it is entirely at your discretion to purchase the insurance policy and it cannot be imposed on the borrower. When getting a home loan, the lender usually offers a single premium insurance plan and, to make it an attractive offer, adds the single premium amount to the loan amount. Your EMI increases slightly and many borrowers may accept the offer. Essentially, you get a home loan and on top of that, you are also insured.

Securing your home loan with insurance is essential. As the amount of the home loan is usually several hundred thousand dollars, it is essential to obtain coverage so that the responsibility for paying it back does not fall on family members in the event of the borrower’s death.

In addition to the insurance policy offered by the lender, you have two other options: either take out a term insurance plan yourself with another insurance company, or take out the mortgage loan insurance plan specially designed to meet your home’s insurance coverage needs. loans.

If you already have term insurance, you can consider buying a new one for an amount equal to the mortgage. Most financial planners suggest maintaining coverage of at least 15 times your net salary. Therefore, consider the existing coverage you have and the amount you would need after getting a home loan. Make sure your life goals and financial liabilities are adequately covered, preferably through a term insurance plan.

Alternatively, you can consider buying the mortgage insurance plan. In such a plan, as the outstanding amount of the loan keeps decreasing over time, the coverage also decreases. So, even if you have taken a loan of Rs 40 lakh, and if the outstanding loan after 9 years is Rs 14 lakh, the coverage of the mortgage insurance plan will also be equal to Rs 14 lakh.

These plan combinations are suitable for those who are already sufficiently insured through a term insurance plan. Also, most borrowers prepay a home loan well before its original term, so mortgage insurance plans may be right for them. Before finalizing, check the premium for both options based on your age, term and amount.

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