Needed, better home loan insurance

Death brings not just emotional trauma but also, often, financial distress for the family of the deceased. It is to guard against this that the prudent often take, along with their home loan, an insurance policy that would take care of repayment of the loan, in case of the untimely demise of the borrower. The pandemic has taken many lives, including of those who showed such prudence.

However, it turns out that most such policies would not kick in, in the case of Covid victims. The need is to have better designed home loan insurance products that cover all exigencies, rather than specific illnesses. The pandemic has turned the spotlight on many home loan insurance products that fail to cater to death due to Covid. Home loan insurance is designed to spare surviving family members the burden of repaying the outstanding home loan of the deceased and also protect the lenders.

Typically, life insurance covers that are bundled with home loans make provision for death regardless of illness. This is in sync with global practice. Death due to Covid also gets covered, automatically. The insurer would have to mandatorily pay the outstanding loan to the housing finance company. But that is not the case with home loan insurance products sold by general insurers.

These policies cover death due to specified illnesses such as cancer or heart attack or due to personal accident, but do not cater to death due to Covid. So, insurers are likely to reject the claims for settlement of outstanding home loans of the deceased loanee.

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The solution is to have better designed products. Most home loan protection schemes come with a one-time premium. Advancing the premium as part of the loan and recovering it along with mortgage payments makes sense.


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