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Everybody dreams of buying their own house. Wealthy people can afford to pay the cost of their house in one go. Others, especially salaried middle-class people, have to rely on home loans offered by banks to make their dream of living in their own house a reality. All banks in India offer home loan services to its customers. A few paperwork and a good credit score can get you a home loan in no time.
Sometimes, banks force their customers to get a home insurance policy along with the home loan. For the unversed, home insurance covers any loss or damages to your property in case of a mishap. The banks will tell you that it is mandatory to get a homeowner’s insurance to avail a home loan facility. Some banks may even refuse to grant you a home loan unless you buy the insurance policy from them. Unaware of whether it is compulsory or not, people often give in to the bank official’s demands and buy a home insurance policy from them. But is it really mandatory? Let’s find out.
It is not mandatory to buy a home insurance policy from a bank in order to get a loan. Contrary to the bank’s claims, there is no compulsion by the Reserve Bank of India (RBI) or the Insurance Regulatory and Development Authority (IRDA) for home loan applicants to buy any kind of insurance from the bank. Officially, the banks cannot insist you to buy homeowners insurance from them. Besides, using the RBI or IRDA’s name is clearly misinformation.
Nonetheless, the banks do stay adamant on forcing you to buy homeowners insurance from them. This happens because the banks may want to protect their self-interest in case you fail to repay the loan. Moreover, they may ask you to buy home insurance from them as they might have a tie-up with an insurance company. If they successfully convince their home loan customers to buy home insurance from their collaborated insurer, they may earn high commissions.
Ethically, it is wrong for the banks to take RBI or IRDAI name to sell home insurance along with their home loans. However, the banks have the freedom to make their internal guidelines to issue a home loan to a customer. They can make it mandatory for home loan customers to buy home insurance for the loan to get approved but only as the bank’s internal guideline. They cannot promote it as a guideline issued by the RBI or the IRDA.
Even if the banks formulate a guideline asking home loan customers to possess a home insurance policy to get their loans approved, they can’t make it mandatory for the customers to buy policies from them only. They need to give them the freedom to choose a home insurance policy of their choice from the market. Undoubtedly, home insurance should be purchased by every homeowner. Still, the customers should make their own decisions of buying or not skipping a home insurance policy.
Moreover, buying a home insurance policy from the bank where you have applied for a home loan is not a great idea. Banks may offer home insurance at a higher premium than what you may get in the market. Outside the bank, you have the option of comparing different home insurance plans based on premium and coverage to find the plan that suits your needs. Moreover, you can use a home insurance calculator to calculate the premium of your home insurance policy as per the size and some other parameters of your home and its contents. The same cannot be done while buying insurance from the bank.
In case the bank where you have applied for a home loan forces you to buy homeowners insurance from them, there are ways to handle the situation. To begin with, you must compare the home insurance plan offered by the bank along with other policies in the market. If you find only a marginal increase in the premium offered by the bank, you can choose to buy the policy for them as it may come with greater convenience.
On the contrary, if you find a stark difference between premiums charged by the bank and the insurers in the market, you can refuse to buy the insurance from the bank. You can let the bank official know that there is no compulsion to buying home insurance from the loan provider bank as per the guidelines of RBI and IRDAI. If the official still remains adamant, you can make a complaint to the manager of the bank.
If even a complaint to the bank manager pays no heed and you are forced to buy home insurance from them, you can threaten them of filing a complaint with the banking ombudsman regarding the compulsory clause of buying insurance to get a home loan. By this stage, most banks will withdraw their compulsion and allow you to buy insurance from any insurer. If, unfortunately, none of this works, you can always apply for a home loan at another bank.
If you do not want to change your bank right before getting your loan approved, you can buy home insurance from them and return the policy within the first 15 days of the free-look period. The insurer will refund your premiums after making any necessary deductions. However, you must buy home insurance from another insurer before cancelling your existing policy.
Summing It Up
A home loan is a crucial part of realising your dream of buying your own house. If your bank is creating a roadblock by forcing you to buy insurance from them, you must let them know that you know it is not compulsory under the RBI or IRDA’s guidelines. Moreover, you must make careful comparisons and an informed decision when it comes to buying a home insurance policy.