Does the lender ask you to take out an insurance plan before sanctioning a mortgage? Here is what to do
When you are about to close the deal with your banker for a home loan, the lender might ask you to take out a life insurance policy. However, remember that purchasing a life insurance policy is not mandatory at the same time as a home loan. Although it is preferable to have an insurance policy to cover a liability in the nature of a home loan, it is not mandated by any authority to obtain the coverage. The insurance policy offered by lenders is a term insurance plan with low premium and high coverage.
As a mortgage borrower, it is in your sole 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 attractive offer adds the single premium amount to the loan amount. Your EMI increases slightly, and many borrowers can accept the offer. Essentially, you get a home loan and on top of that, you are insured.
Insuring your mortgage with a mutual is essential. As the mortgage amount is usually several lakhs, it is essential to obtain coverage so that the responsibility for repaying it 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 purchase a term insurance plan with another insurance company on your own or purchase the mortgage insurance plan. specially designed to meet the need for home insurance coverage. ready.
If you already have a term insurance plan, you may want to consider purchasing a new one for an amount equal to the home loan. Most financial planners suggest maintaining coverage of at least 15 times your take-home pay. Therefore, take a look at the existing coverage you have and how much you would need after getting a home loan. Make sure your life goals and financial responsibilities are adequately covered, preferably through a term insurance plan.
Alternatively, you can consider purchasing the mortgage insurance plan. In such a plan, as the outstanding loan continues to decrease over time, the coverage also decreases. So even if you have taken out a loan of Rs 40 lakh, and the outstanding loan after 9 years is Rs 14 lakh, the mortgage insurance plan coverage 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. Additionally, most borrowers prepay a home loan well in advance of its original term, so mortgage insurance plans may be right for them. Before finalizing, check the premium for both options based on your age, duration, and amount.