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Don't bank on Home Loan insurance from your Bank

Property prices are exorbitant and becoming expensive day by day. Accordingly, your loan amounts too work out to monstrous sums... anything around Rs.50 lakhs to Rs.1 crore is not uncommon today. This is an enormous level of indebtedness.

The home loan tenure... at normally around 15-20 years... too is a considerably long time period.

Both 'high amounts' and 'long tenures', expose your family to stupendous levels of risk if you were to meet with any unfortunate eventuality. Surely, you can't leave them unprotected!


As such, you MUST insure your Home Loan. If something untoward happens to you, the insurance company will repay the balance loan outstanding and consequently your family will not be burdened with repaying the loan.

The common practice is to tie-up the home loan insurance, also termed as mortgage insurance, offered by your Bank (in association with a particular insurance company) while finalizing your home loan itself. 


Beware. This 'common' and apparently 'convenient' strategy to insure one's home loan could turn out to be a very bad idea. Instead, buying a plain and simple term insurance policy on your own may be the most appropriate means to cover your home loan risk.

Why?

1. It would, in many instances, be much much cheaper. You will save thousands of rupees in the premium payout with your own term policy.

2. Typically, bank-suggested plans are single premium ones. This means a straightforward loss the moment you prepay your loans. (Remember, I told you that single premium insurance is a stupidity.)

3. Instead of being restricted to just one company when you go with your Bank, buying your own insurance opens up a whole bunch of choices. This would give you the opportunity to buy tailor-made product, which is best suited to your needs.

4. And what if in future you decide to transfer your loan to another bank willing to lend you at cheaper interest rates? While transferring your home loan to another bank may be relatively easy, the same may not be the case with the attached insurance cover.

5. It is possible that you already have a sufficiently large insurance cover which is adequate enough to not only repay the outstanding loan but also suitably provide for your family's future. So you neither need the cover suggested by your Bank, nor buy an additional cover on your own.

You are under no compulsion to buy your home loan insurance from the company with which your lending bank has a tie-up. And given the many disadvantages of doing so, you should be smart enough to say no to it. Moreover, nowadays it is so easy to buy insurance online with just a few clicks. So no more excuses that it is a trouble to separately look for it.

Therefore, buy your peace of mind with your own term policy.

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