Many individuals often face this problem when they take an home loan. They say that the bank or the housing finance company is compulsorily asking them to take an insurance along with the home loan.
Types of insurance that a home loan may require
Many banks and housing finance companies may insist on three types of insurance. One is on the life insurance of the home loan borrower, the second could be insurance against damage to property and the third is credit risk.
Interestingly, none of these are compulsory, but the institution may decline your loan, if you are unable to provide all or either of these.
An insurance is always beneficial
It is always a good idea to take an insurance, especially a term insurance to ensure that you cover the home loan amount. In the event of death of the home loan borrower, the bank or the home loan finance company may just end-up mortgaging the property.
If there is an adequate term insurance it would cover the entire loan amount, thus avoiding unwanted stress for the dependents.
How much coverage should you take depends on your home loan. Let's say you have a home loan of Rs 25 lakhs. It makes sense to take a term insurance coverage of at least Rs 1 crores. This would enable your dependents to pay back the home loan and have some surplus money.
These days many home loan companies ensure that they build the insurance amount in the Equated Monthly Installments or EMIs.
This would be useful as you would be paying the money without much worries. In short, it is a good idea to take insurance coverage which would be beneficial to you and your dependents in repaying the home loan.
So, if the home loan company insists in passing the home loan after taking an insurance, do not sweat, in the end it is good for you.