Published in Forbes India
Home loan borrowers who have opted for the loan moratorium allowed by the Reserve Bank of India (RBI) can now expect relief on their home loan insurance tenure too.
The Insurance Regulatory and Development Authority of India (IRDAI) has permitted insurers to increase the sum assured and policy tenure for such borrowers so that they are in sync with the revised repayment tenure after the moratorium. However, if they choose this option, such borrowers will have to pay the applicable premium for the extended tenure and higher sum assured needed to cover the increase in the amount owed to the bank.
Premiums linked to loan repayments
Credit life – or home loan insurance – policies pay off the borrower-policyholder’s housing loan in case of her death. This ensures that that her dependents do not have to bear the repayment burden or let go of the house due to their inability to repay. This is different from home insurance, which covers the asset against damage due to fire, earthquakes, floods and so on.
“Usually, the premium reduces as the loan repayment progresses and the outstanding loan decreases. The cover needed also decreases correspondingly. However, due to the moratorium, the total amount due to the bank will go up, necessitating a readjustment of policy tenure and sum assured. So, a commensurate premium will be payable,” explains Sanjeev Pujari, President, Actuarial and Risk Management, SBI Life Insurance.
Typically, these policies are bundled with home loans and offered through the lending bank, which acts as the distributor for such plans. Life insurers and lenders join hands to provide this insurance cover at the time of sanctioning the loan. You can either pay a single premium upfront at the time of taking the loan or allow it to be added to your loan amount. It will then have to be repaid as part of your home loan equated monthly instalments (EMI). These covers are not a prerequisite for obtaining home loans, but it is in your interest to either buy these polices or independent term insurance covers from an insurer of your choice.
“IRDAI’s decision is in favour of policyholders. For instance, if the original tenure was ten years and got extended to, say, 10.5 years after opting for the moratorium, the credit life policy tenure, too, can be extended to cover this duration,” says Abhishek Bondia, Principal Officer and Managing Director, SecureNow.in, an insurance broking firm.