SOME FORMS OF HOME LOAN INSURANCE AVAILABLE FOR BORROWERS

With the changing times and increasing competition, banks have come out with new and innovative schemes. This has been further boosted by the upsurge of insurance companies in the private sector. They provide an important solution - security of repayment of loan in case of untimely demise of the borrower.

Many people are a bit reluctant to go in for housing loans because of the risks involved. The risk of not being able to repay the loan, because of some unforeseen event, deters them. The loan amounts are large. The loan tenures are long too - 10 to 20 years. Uncertainties in life tend to affect the decision. It makes sense to pay a little extra and be secure of the unforeseen risks in the future.

Many new products are entering the market. Innovative home loan insurance schemes have been devised. These offer a wide variety of options to protect the home loan. Many products are flexible and can be tailored to meet the requirements of the borrowers. The premiums paid are eligible for tax rebate under the Income Tax Act.

Many variants of the insurance schemes are available in the market depending on the requirements .The insurance cover can be for pure insurance purposes or from an insurance and investment perspective. The premium payable and the returns vary accordingly.

Various optional add-ons can be combined. For example, critical illness and term rider covers. Once a claim has been paid, either on death or on critical illness, no further benefit is payable. These optional benefits are available to customise the policies to suit the specific needs of the individual.

In case of pure insurance products, only the risk is covered - the risk of non-payment due to unfortunate demise of the borrower. The premium is low in such a case. After the repayment of the loan, the borrower does not get anything. The insurance cover comes to an end on completion of loan repayment. In nonparticipating, pure risk cover plans, no benefits are payable on survival at the end of the policy term. The sum assured under the level term assurance plan is paid to the beneficiary. There are no maturity benefits on survival till maturity. The policy will terminate without any returns.

In case of an insurance-plus investment product, the product covers risk and also promises a return on the expiry of the loan period. The borrower gets back the sum assured along with the accumulated bonus on the expiry of the loan period. The premium is pretty high in such a case.

Some banks give free insurance cover or concessional cover. In some cases, the entire premium for the repayment period is collected in advance on the basis of the rate applicable to the particular age group. The sum assured is equal to the loan amount for which the life cover is available.

In addition, in some cases, the house itself is insured for the loan amount to prevent any loss on account of damage to the property. In case of the unfortunate death of the borrower, the insurance company pays off the balance outstanding loan amount. This avoids undue hardships to the family members of the borrower and does not lead to financial burden.

One may choose the plan that is best-suited depending on the kind of risks he wants to cover.

                                                                                Courtesy: - ET/FT dtd: - 14th Sep 2008