A LEGACY OF ASSETS, NOT LIABILITY

Relatively new in India, mortgage insurance is an effective instrument to financially secure  your dependents on your outstanding home loan liability

Have you ever wondered how your near and dear ones would pay out your home loan liability in case something unforeseen and unfortunate events like death or disability was to happen to you?

If you have, mortgage insurance is just the right thing for you.

A relatively new concept in India, mortgage insurance is a unique insurance product to financially protect your family while opting for home loans. It is a decreasing term insurance with a single or limited premium options. The policy covers you for an amount  equivalent to the outstanding loan, and in case of unfortunate events like death and disability, the insurance company pays the outstanding loan amount, thereby freeing your family from the burden of equated monthly instalments (EMIs). And yet, providing them the ownership of the house you had actually planned for them.

Advantages of mortgage insurance
• Decreasing term insurance to protect the dependents of those opting for home loans
• Available for single and limited premium options for loan tenures above 5 years
• Premium period restricted to two-thirds of the loan period.
• Tax Benefits available under Section 88 of the Income Tax Act, 1961

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Kinkar Bhattacharya, a Kolkata-based insurance expert with about 26-years of experience in the sector, said: “Most people are not aware of the availability of such an insurance policy. The insurance industry is also largely responsible for this lack of awareness amongst the people. Most insurance agents do not expend any effort to sell these insurance policies as compared to the emphasis given on other insurance products.”

What Bhattacharya says is not without reason as the premiums are low – though they have the potential to be huge if volumes build up. Moreover, the marketing departments of the insurance companies feel that the remuneration is low for the kind of efforts that they have to put in to sell these policies or insurance products.

However, many home finance companies (HFCs) and banks are offering mortgage insurance as well as property insurance together with home loan and the premium payable to the insurance company is either one-time or yearly and is amortized with home loan. All one needs to do is to pay a little enhanced EMI on the home loan to cover this insurance protection. Also, this route to insure home loan liability through HFCs is also a value for money option as they are covered under group insurance schemes.

In addition to mortgage insurance, other property insurance policies available include insurance cover for the building as well as for contents and valuables inside the building.

Debarun Roy, a senior executive with LIC said, “Property owners, seeking protection for both, could opt for a composite insurance or a package insurance popularly known as the ‘House Holder’s Policy’. Depending on the requirement, they could ask for inclusion and exclusion of the covers.”

For those seeking protection of the building, the ‘Standard Fire and Special Perils Policy’ is most suitable. It is a tariffdriven policy and the premium payable is as per the tariff. Under this policy, an owner of a property will have to pay a premium of approximately `50 for every one lakh of rupees against standard perils like fire, flood, cyclone and inundation and an optional premium of `10 (approx.) for every lakh of rupees against damage due to earthquakes.

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For example, if the value of a property is `30 lakhs, the property can be fully covered against all these perils by paying a premium of `1800 per annum.

There are also long-term policy conditions for those who prefer to pay premiums for certain periods in advance. These are available in three types – three, five and ten-year long policies. Since the premium is payable in advance, the owners are eligible for certain discounts which are 15%, 25% and 50% respectively.

Apart from providing the much-needed risk covers, the House Holder’s Policy could also go a long way in improving the quality of construction of the building. Once the concept becomes popular, builders have to comply with the quality norms prescribed by the insurance companies. Presently, all builders in Kolkata need to provide one year insurance cover at their own cost to their apartment buyers under the Building Promoters’ Act.

THE FINE PRINT
In case of unfortunate events like death and disability, the insurance company pays the outstanding home loan amount
Most people are not aware of the availability of such an insurance policy
The House Holder’s Policy could also go a long way in improving the quality of construction of the building

Most people are not aware of the availability of such an insurance policy. The insurance industry is also largely responsible for this lack of awareness amongst the people. Most insurance agents do not expend any effort to sell these insurance policies as compared to the emphasis given on other insurance products.
Kinkar Bhattacharya, Insurance expert

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India is turning out to be one of the hotspots of the global insurance business. Insurance premium growth is forecast at around 7.5% (approx) in the coming years. India, along with China, has been chosen as the “most promising insurance markets” in a recent study by Swiss Re, one of the world’s largest life and health insurer. Although China and India accounted for just 2.2% (approx) of the global insurance premiums, their huge economies and population size are supposedly capable of creating ample opportunities for the insurance business. These two countries ranked among the top 10 out of 30 emerging insurance markets in the world, according to the Sigma report by Swiss Re.

What is required today is that Indian insurance companies should create necessary awareness and offer various user-friendly and need-based insurance products to home buyers who are buying homes like never before by availing home loans. Only this would help them to stay competitive and ahead in the game before global insurance giants enter the Indian market.
Goutam Bhattacharya, Regional Director, SBI Life

With the increasing presence of the global insurance companies in India, we are likely to see  many more innovative insurance  products such as insurance to cover EMI on home loan in case of job loss, or major illness etc. (a few insurance companies are already offering these products).

“What is required today is that Indian insurance companies should create necessary awareness  and offer various user-friendly and need-based insurance products to home buyers who are buying homes like never before by availing home loans. Only this would help them to stay competitive and ahead in the game before global insurance giants enter the Indian market,” said Goutam Bhattacharya, Regional Director, SBI Life.

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