Home Loan Insurance cover – Part 2

In continuation with the first part of this series, Home Loan Insurance cover – Part 1, i will share some of the insights on the various Home Loan insurance policies that are available and the advantages and disadvantages in them.

I spoke with atleast top 3 insurance companies on products that they had for the Home loan insurance. Unfortunately none of them actually had all the desired features that i had mentioned in the first part of this series.

They basically had 2 types of insurance policies

1. Single premium - In this product, the borrower pays a single premium amount that is determined by the insurance company and one is covered against any in eventuality in the future. The cover reduces over the tenure of the loan. The amount of premium that one needs to pay will depend on the age of the borrower and the amount of loan cover. While this is very convenient and caters to many of the desired features, the main disadvantage of this product is that the premium amount high for a bullet payment to be made upfront. In case one decides to repay the loan earlier than the contracted period, there is no refund of any premium paid and the additional premium paid becomes a waste. In case the duration of the loan increases/decreases this does have any inbuilt mechanism to pay for the additional cover or increase/decrease the duration of the cover.

2. Regular premium - There is another option for the borrower where one can pay the premium on a regular basis (Monthly, quarterly, Half yearly, Yearly). However, what came as a rude jolt to me was that the premium that one needs to pay is much higher than a term policy for the same duration and the fact that the cover reduces on an ongoing basis, the premium does not. In fact most of the agents and the company officials recommended the term policy instead of the Home Loan cover citing its poor features.

Thus in a nut shell, there is no decent Home Loan Cover policies in force today except for the single premium one which has its own disadvantages. The other workaround is to take multiple single premium policies of the duration of 1 - x years (x being the duration of the loan) of reducing amount in line with the outstanding with the bank for the home loan and closing each insurance as the time passes by.

Here is some related news More home loan borrowers opting for life cover