Is Term Insurance Mandatory for Home Loan?
No, neither term insurance nor home insurance is mandatory while availing a home loan. That being said, it is a wise and prudent choice to buy both term as well as home insurance. We will point out the reasons for the same shortly.
When a person approaches a bank to get a home loan, the bank will generally advise him to buy a home insurance plan before disbursing the loan to the loan applicant. This is generally done to safeguard the interests of the bank as well as the loanee. It must however be mentioned that there is no government regulation to support this.
As per Indian Law, a loanee can avail a bank loan without buying home insurance for that home. However, since banks have the prerogative to approve or reject a loan, they use their position of power to persuade the loanee to buy home insurance. In such a position, you can mention this to the bank manager and request him to approve the loan without buying a home insurance policy. It must however be said that buying home insurance is in the interest of both the home buyer and the bank, and should be purchased without hesitation.
Lastly, a bank will not be concerned if the loanee has a term insurance plan or no before disbursing the home loan as they will collateralize the loan for their protection. Thus it is not mandatory to buy term insurance before buying a home loan. That being said, it is a highly advisable for the loanee to buy a term insurance plan before taking the home loan. Let us investigate the rational for the same below.
Top 2 Reasons to buy term insurance before taking a home loan
- Safety of your family: Imagine someone taking a massive loan to buy a home and then passing away. The entire brunt of that loan will come solely on the family. There will be tremendous plight of the family during such an event. They will have to deal with the death of their loved one and at the same time joist with the pressure of repaying the home loan. Such a situation can easily be avoided if the home buyer takes a term insurance plan. The family can use the sum assured to pay the bank loan amount.
- Peace of mind: The policyholder can be at ease, knowing that his family is protected in the event of his unfortunate death. Nothing can eliminate the dread of his family at such a time, but the load will be slightly less to bear for the family, and the policyholder can sleep better at night knowing his family is protected.
How much coverage should you opt for?
This is another important question. What is the term insurance coverage that you should opt for if you are looking to take a loan to buy your home? Well, the answer is rather straight forward. The loanee should take a term plan that will at least cover the entire loan amount (interest and principle both.)
Further, it is advisable that the loanee also factors in the other expenses of the family like education costs, marriage costs, medical costs, daily expenses, etc before deciding on the term insurance coverage.
Are you looking for a new insurance policy or a policy renewal? Reach out to us and let us assist you.