Bancassurance gets a fillip
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If it is home loan, the beneficiary will be the family of the borrower in the event of something unfortunate happening to him or her.
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Banks seem to be more keen on selling insurance products, or bancassurance, these days, particularly with respect to home loans. One reason for this is the opening up of the insurance sector.
In the case of home loans, bancassurance helps the banks secure the money advanced.
Banks either tie up with private or national insurance companies or float their own companies. In the latter case, it will be the banks’ strategy to promote their sister concerns. However, if it is a loan, the beneficiary will always be the family of the borrower in the event of something unfortunate happening to him or her, bank officials say.
The family will not have to repay the loan. In other words, they will not have to bother about paying the equated monthly instalment (EMI) on the loan if they have lost their breadwinner.
There have been several cases in which families have been saved of the loan burden this way. One case is that of the families of 30 police personnel killed in an accident in Mumbai a few years ago. All of them had taken home loans and State Bank of India (SBI) Life Insurance cover, says P. Ramesh, Chief Manager, Federal Bank.
Still, many families get indebted because the borrower dies and the loan has no insurance cover. The family of a businessman who had borrowed Rs.3 crore from a bank had no option but to sell the property and raise capital to repay the debt, he says.
Mr. Ramesh says all banks insist on insurance cover for home loans. Usually, those in their late twenties who earn a good salary take home loans. The banks do not want their clients to have any liability in the event of something unexpected, he said.
K.K. Ajithkumar, Assistant General Manager, Federal Bank, says that the banks make a lump-sum payment to the life insurance company when the loan is distributed to the borrower. The amount is then added to the EMI.
Insurance for home loan are necessary especially for the salaried class. Normally, salaried people take loans on a long-term basis unlike businessmen who go for pre-closure of the loan. However, it is always advisable to secure the home loan through an insurance policy. Even if the borrowers go for pre-closure, the remaining amount of the premium will be repaid, Mr. Ajithkumar says. If borrowers had not taken insurance at the time when they obtained the loan, they can still go for an insurance cover later, he says.
The insurance policy on home loans is based on several aspects. One of the main decisive factors is the age of the borrower. Usually the banks insist on a medical examination for persons above 40 years of age. But there are also banks that are not firm on medical tests.
Another factor is the loan amount. The higher the amount, the higher the premium. And then the tenure of the loan also matters, Mr. Ajithkumar says.
Earlier, Federal Bank had tied up with the SBI Life Insurance Company. Now the IDBI Fortis Life Insurance Company is giving insurance to its clients. The company is a joint venture between IDBI, Federal Bank and Fortis of Europe.
ICICI Bank has home insurance plans offering cover to home loans.
The benefits of its Home Safe Plus are no medical check-up and comprehensive insurance plan for individuals, home and its contents. The scheme is a single premium long-term insurance plan.
Besides, the premium paid for the critical illness cover is eligible for tax benefits under Section 80D of the Income Tax Act. The sum insured will remain constant throughout the policy period, meaning the outstanding loan amount will go to the bank and the rest to the individual. Multiple applicants can be covered under the same loan.
The benefits of another scheme, Home Assure/Health Assure, are life cover for the entire home loan tenure. It covers critical illness caused by cancer, coronary artery bypass, heart attack, kidney failure, stroke and major organ transplant.
BIJU GOVIND
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