Generally when a home loan of a person is approved, the bank or housing finance companies also try to sell them home loan insurance or home loan protection plans (HLPP). These plans are for 3 to 5 years for a person and for a period of 5 years for the group. Their premium usually ranges from 0.8 to 1 per cent of the sum insured. Puneet Sahni, Assistant Vice President (Product Development) at SBI General Insurance says, “Under this insurance policy, the sum insured is received in the same condition when the health check of the policyholder has been revealed that it is covered by 13 serious illnesses covered in the policy. There is a disease or has died in his accident or he has become permanently disabled. However, financial planners are not in favor of taking such plans. They believe that you should avoid such plans with home loan.
Avoid Home Loan Insurance: Home loan insurance is a part of the sales strategy of banks when giving long-term loans like home loans. The reality is that sometimes banks keep the condition that the loan will be approved only when the customer will buy the insurance plan they sell. There is a kind of hidden threat in this that if you do not buy these plans, then they will not give you home loans. Dipesh Raghav, the founder of Personal Finance Plan Dot Inn, investment adviser, registered in SEBI, says, “Do not feel compelled to buy these plans. Regarding this, there are very clear instructions from the RBI, who say that the bank can not afford to buy insurance plan with home loan.
Generally there are three types of Home Loan Protection Plans (HLPP). First, curved cover plan. As its name suggests, the cover also decreases with the reduction of outstanding debt. However, this can lead to many troubles. Suppose that the rate of interest was 8.3 percent while taking a loan but after that it increases. In such a situation, the debtor’s ability to repay the debt will decrease and his outstanding principal will be much higher than the earlier plan. But as previously mentioned, the insurance cover will continue to decline according to the original timed plan. In the event of untimely death of the debtor, the loan cover may be less than the outstanding principal amount. In such a situation the family may have to pay the outstanding debt from their pocket.
There are other fixed cover plans. If you are buying such a plan, then this is a better option as there is no worry about the change in the sum insured. The third option is Hybrid. In this the sum insured is fixed for a few years and after that it decreases. These plans are more expensive than those term plans, which you can buy directly from the insurance company. Raghav says, “This plan sells the bank, which includes its commission. So these plans become expensive. ‘
One aspect of these plans is that banks already take full premium of home loan insurance policy. In this you already pay the premium. So you do not have the scope to change anything. If you transfer your loan to another bank or pay it prematurely, you will not be refunded for any part of the premium. These policies bind the customer to the bank. That’s why the bank prepares you to lend to pay the premium. This means that you pay interest not only on home loan but also paying interest on the loan premium for the sake of the cover of the original loan.
Instead of buying home loan insurance, you should increase your term cover so that it is sufficient for the extra liability that you have taken as a home loan. Term plan provides security for a long period of time. Suresh Sadagopan, founder of Ladder 7 Financial Advisers, says, “The term plan covers the policyholder for 20 to 30 years, while the home loan insurance cover is available only to the loan. If a person pays the loan prematurely and closes it, then the insurance cover taken through home loan insurance also ceases. ‘ The term cover not only covers the outstanding home loan but also caters to other financial needs in the event of untimely death of the policyholder.
When the claim is canceled: Many times banks can not send the premiums of their client’s policy to the insurance company. In this case, the claim is canceled. If the policyholder’s family fails to submit the report of Panchnama, then the claim of death benefits in the accident can also be canceled. If you buy cover from the bank then take your policy document from the bank and keep it safe with you. If you really want to take serious illness, accident and disability cover then buy it separately from a general insurance company.
Avoid Claims Cancellation: Many times, the policyholder makes a mistake in not disclosing the current illnesses or giving incorrect information in the proposal form. This will cancel the claim under HLPP. Sahni says, “If you do not disclose the earlier diseases when buying a policy then your claim can be canceled. If a policyholder has diabetes and he has not disclosed it and later, due to this diabetes, he can get serious illness, the claim can be canceled. HLPP does not cover natural death or suicide. In order to avoid claims cancellation, the policyholder should take care of certain things.
Shashikumar Adidamu, chief technical officer (non-vehicle) Bajaj Allianz General Insurance, says, “The customer should fill the proposal form carefully and should mention the details of his personal and health. He must also ensure that the information gathered in the proposal form is complete and correct. After receiving the policy document, check that all the details are correct.
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