Home COVER

Buying your dream home and have tied up with a bank for a loan? Don't forget to take an insurance policy on the loan to guard yourself against eventualities such as death or permanent disability, says
Lisa Mary Thomson

THEY say that speed kills. However, for 30-year-old Ajay Mallik and his wife Preity, speed added zest to life. Be it the promptness with which they got their promotions at work, the swiftness with which they bought their first home or literally the speed at which they zipped past on the highway — this young couple was on a constant challenge to outdo themselves and others. Till the day, a car pile-up on the highway left Ajay a quadriplegic for life.
    Faced with the fact that Ajay would perhaps never be able to return to his high paying executive's job, Preity went out of her mind worrying about how they were going to meet expenses, not just the medical bills but also the installments on the Rs 70-lakh loan they had taken for their dream home. However, a part of the burden was lifted off her shoulders, when she looked through Ajay's papers. Ajay had been sensible enough to take a home loan insurance policy, which would take care of the outstanding amount in the case of a permanent disability.
    In fact, this little-known home loan insurance policy could go a long way in easing you of the worries that could ensue if the earning member of your family meets with a sudden death or suffers from permanent disability. To help you make up your mind, SundayET comes to your aid with a ready reckoner on taking a home loan insurance policy.
LOOKING BEYOND THE LOAN
It may appear as though death, permanent disability and critical illness are the predominant eventualities that you need to guard yourself against if you have huge liabilities on your plate like a home loan. In fact, most companies have drawn up a fairly comprehensive list of the critical illnesses that are covered under the policy. Lately, however, many of them have also made this policy applicable for individuals who have become the victims of retrenchment. While this has emerged as the silver lining in the dark clouds for many of those who lost their jobs during the slowdown, it comes with certain clauses. "In case of loss of employment, the equated monthly installments are aggregated and a cap of three EMIs applies," says Neelesh Garg, director of ICICI Lombard. Meanwhile, in certain other policies, the attempt is to offer a comprehensive policy where the coverage goes beyond the loan and also includes damages to the structure and contents of the home due to fire, earthquakes and even burglary or theft.
PREMIUM PLANS
Another significant benefit is that while the loan may be for a large sum, the premiums are quite reasonable and affordable. In fact, many experts feel that most home insurance policies are very much like term plans as they offer low premium and also do not return any premium if the person outlives the policy without making any claims. Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance says, "This is not an investment product and is purely a risk product. So the person shall not get back the money paid towards premium under any circumstances." However, if a person dies halfway through a reducing balance policy, then in most cases the company will only return the outstanding amount to the bank. However, there are a few insurance companies which provide full coverage and pay the outstanding amount and return the rest to the nominee. Moreover, if you choose to foreclose your loan, then most policies give you a refund depending on the terms and conditions. "In case you decide to pre-pay your loan, the cover would continue on basis of the loan schedule or surrender value of the policy," says Anil Singh, head – actuary and product development, Bajaj Allianz Life Insurance.
    Most companies also give you the option of either paying premium upfront, as a single premium or through annual premium. However, HDFC Ergo General Insurance also has a offering for those who are struggling to paying their premiums. According to Mukesh Kumar – head, retail business group at HDFC Ergo, "While premium is charged up-front, the insured can opt for finance for the insurance premium too from the financing company." That apart, premiums are calculated on a range of factors, starting from age of the person taking the loan, the loan amount, interest on the loan to the tenure of the policy. If the policy also involves a comprehensive cover for the home, then it would depend on the size of the home, its location and the nature of construction.
THE ART OF CHOOSING
It is important to remember that may insurance companies offer their products only for loans, which are taken from specific banks. For instance, the policies issued by HDFC Ergo and ICICI Lombard only cover loans which are taken from HDFC Bank and ICICI Bank, respectively. Moreover, if a person is self-employed then loss of job may not be covered in the policy.
    When it comes to choosing between policies, you would need to consider premium rates, whether the cover is adequate enough and if includes the necessary requirements. You also need to remember to review the sum insured every year so that you do not end up paying a higher premium than what is actually required.
WEIGH THE BENEFITS

• Insurance Co. pays outstanding loan amount in cases of death, permanent disability, critical illnesses & even job loss

• Low and affordable premiums

• No premium returned if person outlives policy

• Includes provisions for foreclosure & prepayment of loans

• Occasionally includes comprehensive coverage for structure and contents of home

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