Q. My wife and I work in the government sector and our salaries are ₹35,000 and ₹54,000 net respectively. We are both in our 40’s and have taken out a 60 lakth home loan together for 25 years. It’s about choosing the insurance coverage that my wife or I should opt for to cover/forgive our home loan in the event of an uncertain event.
RAVINDRA KUMAR
A Mortgage insurance is usually bundled with the home loan. The amount insured on these loans is equal to the loan amount and the term of the policy is equal to the term of the loan. The policy will be assigned to your home loan company so that the claim payment is made to them so that they can set them off against the outstanding portion of the loan, interest and fees and pay the balance to your agent. The function of coverage is to pay off the outstanding loan and interest in the event that the borrower dies without paying off the loan.
This keeps the property credit-free for the surviving owners/family members who are struggling with the loss of a loved one and the breadwinner.
For some reason you didn’t choose to do this or your homebuilder didn’t make it a requirement. A good first step is to ask them about their options/offers, if any, for the insurance to work seamlessly with your home loan.
That being said, term life insurance policies used to secure home loans have certain rigidities as they have been defined for your lender’s needs.
For example, the coverage with your loan ends, ie it ends at the same time as your loan is scheduled to be repaid, while you may wish to continue the policy beyond that date to protect your family. Please search independently for term life insurance with suitable sums insured and insurance periods.
If you discover something you like, adjust the sum insured and term to your liking, making sure the former is higher than your home loan amount and the latter longer than the term of the loan. You’re unlikely to find better rates since the home loan company would have negotiated a bulk rate, but there’s no harm in doing your research. You may find additional covers that you like. You can ask your housing association to get these additional covers for you, but they may or may not be inclined!
Q. I have a 10-year term life insurance policy and I also have a 25 year term-only policy with a sum insured of ₹1 crore. Is it advisable to take out both insurance policies? If no, and if I return the endowment policy, what are the pros and cons?
JOEL KIRUBHAKARAN
A Since you bought both policies and paid the premium, only affordability or creating more efficient coverage can be a reason for canceling the endowment policy.
If you wish to do this, you can check whether your policy has become redeemable or surrenderable. Your insurance company’s website and your agent’s website can also help you with the information and formalities. If you take out the policy amortized, you no longer have to pay a premium and the insurance cover continues with a lower sum insured.
If you want to get back part of the money you have already invested immediately, you can return the policy depending on the conditions. You will be reimbursed part of the premium paid and the insurance cover will end. After that, you can stay with your term life insurance if you feel it is sufficient, or use the avoided premium on principal or surrender value you received for a new term life insurance policy. Because of the difference in premium between the two policy types, you have more coverage than with the previous combination.
Q. I am 28 years old and have a 20 year capital life plan that began in 2018. The premium I am paying now is ₹3,400 per month. After reviewing many finance related articles including Peppystores‘s MoneyWise section, I now think that a capital life plan is not the best investment option. What would be a better plan for me if I were to give up my endowment? Also, will there be downsides to giving up before it’s due?
AJIN KRISHNAN K
A Giving up has its price. You only get back a part of the premium paid so far and the insurance cover ends. You can check whether the policy is solvent. In this case, you can stop paying the premium and the insurance cover will continue to be reduced. You can then increase your life insurance portfolio to the desired level at cheaper rates.
Almost all the information you need to compare surrender or surrender costs can be found on the front of the policy or on your insurer’s website. Your agent or branch of your insurance company can also support you with information and procedures. They will also tell you the disadvantages of such an attitude and strongly advise you against it. Take advice from their site, but also do your own research and make the decision that’s right for you.
(The author is a business journalist specializing in insurance and corporate history)
