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.
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.
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