Understanding the Mortgage insurance – Concept, Benefits etc.
Having a home is a dream for many of the Indian people. But due to the rising real estate and construction costs it is becoming highly difficult to purchase a home without a loan. Home loan market is growing every year and stood at Rs.11.5 trillion as of March, 2009. The CAGR growth rate has been around 16% over the past 6 years. Keeping this in mind many banks and NBFCs have cut the interest rate payable on the home loan.
Most number of loans is being availed by the people in the metro cities while the tier 2 cities are giving a tough competition to the metro cities. At the time of giving loan banks and other financial institutions ask for an insurance to cover the loan in case of death of the insured or in case of customer not being able to pay the instalments.
This insurance offered is popularly known as Mortgage insurance or Mortgage title insurance or Home loan protection plan insurance.
Below are the types of insurance offered under the Mortgage insurance:-
1. Decreasing Term Insurance:
The decreasing term assurance plan is the most common type of Mortgage insurance offered to the customers. In this type of insurance the sum assured would be same or more than the loan sanctioned and each month the sum assured would be decreasing corresponding to the loan. Since the loan outstanding decreases each year, the sum assured in the mortgage insurance also decreases each year.
At any point of time during the period of mortgage, the sum assured would not be less than the outstanding loan amount. This is the cheapest option available under the Mortgage insurance and is considered to be the most effective and suitable mortgage insurance option.
In case of death of the loan customer the claim proceedings can be utilised to settle the loan outstanding and the remaining amount if any can be utilised by the beneficiaries. This helps the family of the deceased to sail through the difficult times and have their dream home with them. This type of product is offered only by the Life insurance companies under their Group Mortgage insurance.
2. Critical Illness + Personal Accident + Loss of Job:
Since the term insurance cannot be offered by the general insurance companies, they have come up with an idea to provide a combo product to the loan customers of banks and other financial institutions. This combo product includes the coverage for Critical illness, Personal accident and Loss of Job. Let us understand the coverage provided under each section of this combo product.
Critical illness can be defined as the life threatening illness which leads to the death of a person in most of the cases. The cost of treatment associated with critical illness is way higher than the other diseases. Few examples of critical illnesses are Cancer, Heart attack, Severe burns etc.
If a loan customer expires due to any of the mentioned critical illness in the policy copy, the insurance company settles the amount to the bank to clear the outstanding loan amount. Remaining amount if any is paid to the beneficiaries of the deceased.
Personal accident insurance is an agreement between the insurance company and the policyholder where the insurance company will provide financial compensation to the policyholder or his/her beneficiary in the event of accidental death or disability. In the mortgage insurance for any event such as death or disability the loan customer would not be able to repay the loan. In such situations the insurance company will settle the outstanding loan amount to the bank so that the beneficiaries can take the possession of their dream home.
Loss of Job
Under this section the insurance company compensated the policyholder with up to 3 months EMI in case of loss of job due to the factors which are not in the hands of the policyholder. It is expected that the policyholder can secure another job within the 3 months. The claim is not payable if the customer loses the job due underperformance, termination from the company etc.
The Combo product doesn’t cover natural death while the decreasing term insurance doesn’t cover the EMI in case of loss of job. Each product has its own advantages and disadvantages and it is upon the customer to select the best product within his budget.
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