Opting for an insurance policy on a home loan popularly called home loan insurance is entirely your (borrower’s) choice and nobody can force you to avail this plan.
If your bank is forcing you to avail home loan insurance, then it’s just because they are receiving a commission from an insurer to do so.
Home loan insurance covers a borrower’s outstanding loan liability, in case of loss of income or death of a person repaying the EMIs. In such cases, the insurer settles the remaining dues with the bank.
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Home loan insurance is an insurance plan for your home loan and not for your home. It just makes sure your home loan is secured.
Just like any other insurance plans, you will have to pay a premium on a home loan insurance plan. The premium depends on:
You can claim tax deductions under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 Lakhs a year, if you are paying the premiums on this plan. But, if your lender is paying the insurance premiums (which become a part of your loan), then you cannot claim any tax benefits.
It can lapse in the following scenarios:
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4. What if the bank refuses to sanction your loan?
You must communicate to the bank, that you are aware of the rules and can take necessary action if required.
Ask the bank to state in writing that it is mandatory to take home loan insurance on the sanctioned home loan, thus making your case stronger. Do tell them that you would like to inquire with the Banking Ombudsman (Banking Ombudsman looks into complaints by customers against banks), before availing a home loan insurance plan with them.
If it doesn't affect your pocket, than you must consider a home loan insurance plan. You insure your car or bike, then why can't you insure your home loan?
But, there is no compulsion on you to avail a home loan insurance plan from the same bank where you take a home loan. Always compare the pros and cons of different policies offered by different insurers.
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