Do I need to buy insurance along with home loan ?

Recently I received this email from one of my client:

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I recently brought an apartment and was about to close a home load with SBI, at the end they are asking me to sign-up for “SBI Life Dhanaraksha” insurance for 1.9L (in 5 equal monthly payments for 30 L loan for 20 year term).
Do you think this is compulsory or just trying to sell some SBI’s product as part of Home loan ?

This is unfair !

There is no IRDA regulation or guideline given to the banks to sell the insurance products along with home insurance !

Time and again we come across this complaint from our clients. I hear the same horror story from other sources, some banks try to sell ULIP Plans or high commission endowment along with lockers. SBI has this strange practice and try to bundle life insurance along with home loan.  In this case also. SBI Dhanaraksha is not a bad plan and it is relevant for mortgage liability.

Good Financial advisors recommend having an life insurance to the value of outstanding loan to relieve the
pressure from dependents for paying the loan back in the unfortunate event of family head’s death. A family depending on the earning potential of the family head will find it difficult to pay back the loan, should the family head meet unfortunate death while the loan is outstanding. If the monthly EMI is missed, banks can take possession of the house where the family is living. This is why good financial advisors recommend having a life insurance policy equivalent to the loan outstanding amount. So, in the event of death of the family head, the dependents can use the proceeds of the life insurance to settle the loan and continue to live in the house without any problem.

While it should be appreciated that banks try to help the clients with this solution, we oppose the forceful selling of these insurance plans to those who don’t need it. The decision of having this cover should be left to the investor and not forced down the throat of the investor.

We should remember Banks already have the house as the security and allowed recourse in case of default of EMI payments. RBI does not recommend this.

The Practice of harassing customers to earn bit of commission while offering loans should be highly discouraged !

What can the client do ?

Ask them to give a letter in writing that they will not offer the loan without the insurance purchase.

Take the name of the bank officer who suggested this and duly complain to the Bank Ombudsman. Most of the time, a threat should suffice to bring them to senses !!

[ Dont be afraid to complain. Banks may not need your deposits, but they need you to use their money. Banks make money on loans ! So, you will get your loan !! ]


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