Insurance is a method of
mitigating risk. And the same logic applies to housing insurance as well.There
are two aspects of housing insurance.First insurance is for housing loans and
second insurance is for the house property.A major deterrent for
housing loans is the risk involved.Some people are reluctant to take a housing loan because of the risk involved.The loan amounts are large with tenures
ranging from 5-30 years. There is a risk of not being able to repay the loan because
of some unforeseen event happening in the life of the Borrower.The question
that bothers some is, ‘what happens in case the sole earning member meets with
a mishap? How would the housing loan get repaid by the surviving members of the
family of the Borrower?’
At the same time, a Bank
is also concerned about recovery of its dues in a simple a manner as possible,
without having to go through the long and tedious process of enforcing the
mortgage.With changing times, Banks have come out with new and innovative schemes.This has been complemented by an upsurge of insurance companies.They
provide security for repayment of loan in case of untimely demise of the
Borrower. Private players are entering the insurance market, and many new
products have been launched. These give a wide variety of options to protect a
home loan. Many products are flexible and suit the requirements of the
Borrower.
The premium can be for
pure risk cover or they may cover both risk and investment objectives.Many
variants of the insurance schemes are available in the market depending on the requirements.The insurance cover can be for a pure insurance purpose or for
insurance and investment. The premium payable and the returns vary accordingly.
Various optional add-ons
can be combined, including critical illness cover, term rider cover etc., on
payment of extra premiums. These optional benefits are to suit the specific
needs of the individual.
The second aspect
related to housing insurance pertains to insurance for the house property per se.This applies to constructed property. The insurance company covers risks of
damage to property by earthquake, flood, lightening or other specified risks.
In case of such damages, the insurance company makes good the loss suffered by
the insured.
In case, one opts for
the pure insurance product, only the risk is covered, i.e., the risk of
non-payment due to demise of the Borrower. The premium is low in such a case.
This is a term insurance. After the repayment of the loan, the Borrower does
not get anything. The insurance cover comes to an end on completion of loan repayment.
In non-participating,
pure risks cover plans, no benefits are payable on survival at the end of the
policy term. The sum assured under the level term assurance plan is paid to the
beneficiary. There are no maturity benefits on survival till maturity.
In case of insurance
plus investment products, the product covers the risk and also promises a return on the expiry of the loan period. The Borrower gets back the sum assured
along with the accumulated bonus on the expiry of the loan period. The premium
payable is higher in such a case.
Some Banks give free or
concessional cover. In some cases, the entire premium for the tenure is collected in advance on the basis of the rate applicable to the particular age
group.The premium depends on the loan amount, sum assured, and the age of the
Borrower.The sum assured is equal to the outstanding loan amount. In addition,
in some cases, the property itself is insured for the loan amount to prevent any
loss on account of damage to it.
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