Should you buy an Insurance for Home Loan? Not Required

If you or anyone you know have taken a Home Loan, must have experienced that the bank representative forces to take an Home Loan insurance policy (called Mortgage Redemption Insurance/ home loan protection insurance) or tell you that Home Loan insurance is mandatory (though it isn't), or would have offered you less interest rate for the Insurance.

Let's understand the importance of having an Insurance?

Taking out insurance when you have a home loan is an important consideration for several reasons:

1. Protection of Investment: A home is often one of the largest investments a person will make in their lifetime. Insurance helps protect this investment from unfortunate event that could cause significant financial loss.
2. Mortgage Requirement: Many lenders require borrowers to have homeowners insurance as a condition of the loan. This protects the lender's investment in the property, ensuring that they can recover their losses in case of an unfortunate scenario.
3. Peace of Mind: Knowing that your home and belongings are insured can provide peace of mind. You can feel more secure in your investment and less anxious about potential risks.

While it seems logical to have an insurance for loan against property. It absolutely NOT required for the below reasons

1. First of all, It's NOT mandatory to have an insurance : After all, Home Loan is a secured loan, Bank will have your home documents until you clear the loan. i.e. Bank will have rights on your property (of course to the extent of your loan outstanding) until you clear the Loan.
2. But in an unfortunate scenario (home owner's death) the bank will have the control of the property right, what can be done?. That is exactly why one need a Term Insurance in place which will not just be an income replacement to protect the dependents. It will also cover for any outstanding loans.
3. In case of a Home Loan Insurance (or any mortgage redemption loan), Lender will be the nominee, meaning the money directly goes to the lender/bank in an unfortunate scenario. In case of a Term Insurance, the cover amount goes to the financial dependents (family), they can pay the outstanding amount and keep remaining corpus with them.

In summary, taking out Term Insurance when you have a home loan is a smart financial decision that protects both your investment and your financial future. It provides essential coverage and peace of mind, ensuring that you are prepared for unexpected events. 

#walkthetalk: I already have a term plan with decent cover and didn't let the bank representative pursuade me to take the Insurance for my plot loan.

Regards,

Honvest Team.