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7 Reasons Why You Should Not Buy Home Loan Protection Plan (HLPP)?

Recently i received lot of queries from my readers regarding Home Loan Protection Plan (HLPP). At the time of availaing Home Loan, almost all Home Loan Lenders insist the Borrower to buy Home Loan Protection Plan & pitch it as compulsory buy for availing Home Loan. Let me clarify, it is not mandatory & compulsory to buy Home Loan Protection Plan while availing Home Loan. It is at the discretion of Borrower, whether he would like to avail HLPP cover or not. Home Loan lender cannot force Borrower to buy this cover. It is especially pushed by Home Loan lenders, whose sister concerns provide this kind of plan like SBI, HDFC, Kotak or ICICI.

Before we start, let me explain what is Home Loan Protection Plan?

Home Loan Protection Plan is nothing but a Single Premium Term Insurance Plan, which covers the outstanding Home Loan taken by a Borrower at any given point of time e.g. If i took a Home Loan of 50 Lacs and also buy Home Loan Protection Plan to cover my Home Loan amount. God forbids if something happen to me after 4 years and my outstanding loan is 38 Lacs at the time of death then HLPP provider will clear my outstanding Home Loan and my dependents / legal heirs need not to worry regarding my outstanding Home Loan.

Now let us examine 5 reasons, why you should not buy Home Loan Protection Plan becoz of its inherit disadvantages

1. Home Loan Protection Plan is too costly compared to pure Term Insurance:

The premium of HLPP is much higher compared to pure Term Insurance Plan. When i took Home Loan, HDFC ERGO offered me HLPP cover for my Loan Amount & quoted me premium of approx 1.3 Lacs for 5 years but when i checked Pure Term Insurance Plans offered online then the premium for cover equivalent to my Home Loan was approx 12,000 p.a. i.e. 48k for 5 years. What it implies that Home Loan Protection Plan premium is almost 2.7 times the premium of Pure Term Insurance Plan. This ratio might vary from case to case depending on the age of the borrower but this ratio will be double for sure. Financially it makes wiser decision to buy pure term insurance rather going for Home Loan Protection Plan. Pure Term Insurance Plan is most economical way of covering your Home Loan compared to Home Loan Protection Plan.

2. Home Loan Protection Plan Cover is Valid only for 5 Years

The Protection Cover of HLPP is mostly valid for 5 years not for the whole term of the Home Loan and after 5 years, it needs to be renewed whereas Pure Term Insurance Plan Cover is applicable through out the Life of insured person.

3. HLPP is a Single Premium Policy

This is the biggest disadvantage of HLPP. Normally, the Home Loan Lender project that Borrower need not to pay anything for this cover as the Premium of HLPP will be added to the Home Loan Amount and can paid along with monthly EMI. As a borrower, i need to understand that my Home Loan interest rate is 11% and if i add premium of HLPP to the Home Loan amount then effectively, i am also paying interest of 11% on the premium of the Home Loan Protection Plan. The net premium of the HLPP will be much higher, if i include the 11% interest i paid on the premium amount of HLPP. Whereas in pure term insurance plan, i have liberty to pay the premium on annual basis therefore it will not be much burden on my pocket as i have to pay small amounts at regular intervals & amount will be lower compared to HLPP

4. Home Loan Protection Plan does not cover death under Natural Reasons or Suicide

By adding this clause, HLPP provider is minimizing its risk as Natural Death is defined as death caused by illness or internal malfunction of the body e.g. Heart Attack, death due to some complications like infection etc (Source: Wikipedia). Also note that Pure term insurance plans cover Natural Death & also cover suicide after 1 year from commencement of policy whereas HLPP does not cover Natural Death & Suicide.

5. Home Loan Protection Plan cover is not Constant but Depleting in nature

This is quite interesting and most important point to note. Now take case of 2 best friends Person A and Person B, who bought a flat together in same apartment. Person A has taken Home Loan of 60 Lacs and opted to HLPP & Person B has also taken Home Loan of 60 Lacs but he opted for Pure Term Insurance Plan of 60 Lacs.

Assuming that in an unfortunate event both died together after 4 years in a road accident. Now Loan outstanding of Person A and Person B was 46 Lacs each at the time of death.

In case of Person A, HLPP provider will pay the 46 Lacs to Home Loan Lender and clear off the Loan amount pending. Whereas in case of Person B, the term insurance provider will pay 60 Lacs to the legal heirs of Person B. The Legal Heir of Person B can use 46 Lacs from 60 Lacs to clear off the Loan and Balance 14 Lacs can be retained & used for other purpose like education or marriage of child of Person B.

From above e.g. we observed that if borrower opt for HLPP then at any given point, the liability of HLPP provider is restricted only to Loan outstanding though cover was for 60 lacs at the time of availing loan. Therefore HLPP is depleting in nature & cover keeps reducing with payment of principal amount whereas Pure Term Insurance Plan over is Constant in nature.

6. HLPP becomes null & void in case of Foreclosure of Loan

On an average all Home Loans are closed within 7- 8 years. If average is 7-8 years then we can assume that 30% loans are closed within 5 years becoz of increasing income levels. If u have take HLPP for 5 years and you close your Home Loan in 3 years then you will not get any refund of premium and by default your HLPP will become null and void. Even if u pre-pay part of ur loan then ur HLPP cover will reduce in line with Principal outstanding.

7. HLPP becomes null & void if Home Loan is shifted to New Lender

Now the prepayment penalty is being abolished and many borrowers are taking advantage of lower interest rate offered by other banks. But before switching your Home Loan for lower interest rate, pls note that your HLPP with existing lender will become null and void if Home Loan is switched to other lender. Premium paid will not be refunded back.

Home Loan is a big liability and it is important that we should take appropriate cover during our lifetime to cover the Home Loan Liability. Life is very uncertain and Home is the most precious gift which a person can leave for his near and dear ones. To ensure that after us, our loved ones should not face any hardship to clear the loan outstanding, it is important to buy term insurance plan covering the Home Loan amount. This is very crucial step to secure the future of our family.

Copyright © 2011-2012 Nitin Bhatia. All Rights Reserved.

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Kashinath Vajpai
Kashinath Vajpai
11 years ago

Very useful information. Thank you so much.

Lakshmanan.S
Lakshmanan.S
10 years ago

Hi Nitin,
I m looking for Term insurance plan @online. Which one is better for me? 1.5 crore is cover. My age is just 29

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Lakshmanan.S

I would suggest you to buy 2 Term Insurance plan of 75 Lac each instead of single Term Insurance policy of 1.5 Cr. Though the premium of 2 term insurance cover will be slightly high compared to one but it has lot of advantages. You may buy following
1.Recently LIC has launched online Term Insurance Plan. One plan should definitely be LIC online term insurance plan because LIC has best claim settlement ratio among all insurance providers.
2. Second plan you can buy either HDFC Click2Protect or ICICI Pru iCare Term Insurance Plan.

Muralikrishna
Muralikrishna
9 years ago
Reply to  Nitin Bhatia

Hi Mr Nitin,
Would like to know which are the best term insurance for NRI so that covers around 75 lakhs, requesting your valuable suggestions in this regard.. thanks…

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Muralikrishna

Terms and conditions for NRI’s is different which you need to check before applying but i will suggest to opt for 2 policies of equal value i.e. 37.5 lakh each from either of following 3.

1. HDFC Click2Protect plus
2. SBI e-shield
3. Max Life term insurance cover

Disclaimer: I have subscribed to all the above mentioned plans and is suggesting purely based on my independent research i.e. premium, features, claim settlement, benefits etc.

Ajay3326
Ajay3326
11 years ago

Thanks for clearing my doubts.

Puneet
Puneet
11 years ago

excellent info!! tums up

Saish746
Saish746
11 years ago

what about point#5 in case of joint loans

Nitin Bhatia
Nitin Bhatia
11 years ago
Reply to  Saish746

Your query is not clear but as i understand you wish to ask coverage part in case of joint loans…Depending on policy wordings coverage can for either of following
(a) Either or Survivor
(b) Primary Applicant

Arshad
Arshad
11 years ago

So Simple 7 Eye Opening Article.

Kumar
Kumar
11 years ago

Hi Nitin,

I have a home loan from SBI with life and general insurance added to the loan. Now, I am planning to sell the property. Can I surrender these two insurance policies.

Appreciate your response as I am in discussion to sell the property ASAP.

Reagrds,

Kumar

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Kumar

These policies are non refundable and non transferable.

BHAGIRATH MOHTA
BHAGIRATH MOHTA
10 years ago

I HAVE BEEN MISGUIDED BY ICICI BANK SALES PERSON WHO MISGUIDED ME AT THE TIME OF SIGNING SANCTION LETTER WITH A TOP UP LOAN SANCTION LETTER.LATER ON WHEN I CAME TO KNOW ABOUT THIS TOP UP LOAN, I ASKED THE SALES PERSON ABOUT THE SAME HE SAID THAT IT WILL BE USED FOR INSURANCE POLICY. I TOLD THE SALES PERSON THAT I WAS UNAWARE ABOUT THE POLICY SO PLEASE CANCEL AS I DON’T WANT IT BUT HE KEPT ON FORCING ME THAT THIS IS COMPULSARY. I TOLD HIM THAT THIS TYPE OF CROSS SELLING IS ILLEGAL AND ALSO TOLD HIM THAT IF THIS IS THE CONDITION I WILL NOT TAKE THE LOAN. AFTER THIS ICICI SALES PERSON TOLD SIR PLEASE DONT CANCEL THE LOAN I WILL CANCEL THE POLICY.ON THIS PROMISE MY LOAN WAS DISBURSED. ON 28/11/2013 I RECEIVED AN SMS FROM ICICI PRUDENTIAL WHICH STATES THAT THE POLICY NO. AFTER THIS I CALLED THE BANK THEY ARE SAYING THAT THIS IS COMPULSARY AND CANNOT BE REMOVED AT ANY COST AS THIS POLICY IS ATTACHED WITH THE HOME LOAN. I REQUEST YOU TO HELP ME IN THIS MATTER TO HOW TO CANCEL THIIS POLICY. ICICI CUSTOMER CARE IS FIRSTLY SAYING ITS NOT MANDATORY BUT AFTER TALKING TO MY BRANCH THEY ARE SAYING ITS COMPULSARY.

Nitin Bhatia
Nitin Bhatia
10 years ago

You can complain to RBI bank Ombudsman regarding same. Also as i keep mentioning that policy is compulsory. Unfortunately, if you have sighed the documents then you cannot do much in this regard. Even if you will cancel the policy, you will not get the refund.

Praveen Jayachandran
Praveen Jayachandran
10 years ago

Hi Nitin,
great article! I think I read this article at the right time since I’m applying for a home loan from SBI tomorrow! Could you please suggest me some good pure term insurance policies available since I’m not able to find them online. Your suggestion will really help me.

Many thanks,
Praveen.

Nitin Bhatia
Nitin Bhatia
10 years ago

You may buy online term insurance of LIC or HDFC (Click2Protect)

Krishna Kishore
Krishna Kishore
10 years ago

Hello Mr Nitin,
I applied for a Home Loan and Planning for a Term Insurance Plan from others. Pl suggest best term Insurance plan which gives protection to Home loan and a life time cover.What all the benifits i will get from it ??? what would be the appx single premium amount for Rs 1200000/- home loan. and the tenure is 15 yrs. What all the benifits i can expect from a term Insurance if i take one, outside my home loan lender. Pl help in this matter.

Nitin Bhatia
Nitin Bhatia
10 years ago

Term Insurance is a life insurance which does not provide any returns. It simply covers the life of a insured for a particular period. The policy expire after the term of the policy ends. You should opt for max term i.e. 30-35 years depending on your current age. I would not suggest to buy Term Insurance linked to Home Loan as it will be costly and provide diminishing cover linked to Home Loan outstanding.

Also i would not suggest you to opt for single premium term insurance as it is costly. Please let know your age then only i will be able to suggest best plan for you. Also the premium depends on age of person, current health status and other under writing terms of the insurance provider. Pls check my following post on points to consider while buying insurance cover
https://www.nitinbhatia.in/personal-finance/5-points-consider-buying-insurance-policy/

Krishna Kishore
Krishna Kishore
10 years ago
Reply to  Nitin Bhatia

My age is 37 and Home Loan is 12L for 15 Yrs tenure. Pl suggest best insurance policy which serves the purpose. What all the inclusions, exclusions ?? will this policy gives security to the construction and to the indl too ??What is the difference between a general insurance and a term insurance ??

Nitin Bhatia
Nitin Bhatia
10 years ago

To safeguard your property you need to buy separate Home Insurance Policy. You may opt for ICICI Lombard Home Insurance. Pls check following link
https://www.icicilombard.com/home-insurance/silver-plan.cms

Inclusions and exclusions vary from policy to policy. You may check term insurance policy from LIC or HDFC Click2Protect.

General Insurance is basically Non-Life policy. It include insurance of Home, Car, Automobile etc.

shirishk
shirishk
10 years ago

Hi,
I am holding SBI hosing loan since 2005 and found last Dec 2013 they directly debited Rs 7800 from my account as insurance premium. When I singed the documents in 2005 there was no compulsion of insurance. Now only 2.5L loan left and they debit above amount. Please advise me what should I do in this case.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  shirishk

Normally Home Loan Protection Plan are not issued in between the loan term. Seems something wrong here. Without your consent, SBI cannot issue the policy and debit the amount. I would request you to give written complaint to SBI regarding the same and seek clarification from bank. Also request the bank to reverse the amount debited in complaint. Don’t forget to take acknowledgement from bank. Once you receive bank’s response then we will decide what to do next.

shirishk
shirishk
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin for the info i am planning to have word with SBI and update you.

Madhan
Madhan
10 years ago

Hi Nitin,
I got sanctioned a Home loan for Rs. 25L in SBI. I have also included the HLPP. Can it be reversed now since i have not yet received my first part of payment from the bank and not yet done with MOD

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Madhan

Yes, you can return the policy within 15 days of receiving same. From the date of receipt of policy there is a free look up period of 15 days under which you can return the same. Premium paid will be reversed after deducting some statutory charges.

Also note that as per IRDA guidelines this free look up period starts from date of receipt of policy in customers hand not from date of issue of policy therefore while accepting policy kindly mention clearly the date and time on acknowledgement so that there is no dispute on date of receipt of policy.

sonam
sonam
10 years ago

dear nitin sir
your post is very nice but sory to say that your information about hlpp is incomplete. hdfc ergo and hdfc credit protect cover your full loan amount. u gave a example mr. a nd mr. B.
if mr. A have hdfc ergo or hdfc credit protect than after his death hdfc will pay his 46 lakh which is outstanding amount nd remaining 16 lakh rs pay his nominee.because insured amount is 60 lakh.
and very sory to once again about your information that hdfc credit protect coverd home loan for 20 years not for 5 years as u said in your blog. lets take a example ..Mr. A take home loan 40 lakh for 20 years. but he pay his loan only 3 year in this case if mr. a die after 19 year 11 month.than his nomnee will get 40 lakh. because insurance tanure is 20 years
sory once again credit protect and hdfc ergo also cover natural death.like heart attack.
so sory again about your information hdfc credit protect also cover suicide .

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  sonam

Thanks for your inputs but you are confusing between Home Loan Protection Plan and HDFC Credit Protection Plan. Both are nothing but glorified & costliest Term Insurance plans. All the content of my post are correct. Secondly coverage is only 1 part but please compare premium & other points mentioned in the post. Pure term insurance plans are much cheaper compared to these fancy plans. Lastly in term insurance the beneficiary has freedom to spend the amount as per his/her wish whereas in HLPP or Credit protection plan, it is not the case.

vinod
vinod
10 years ago

Very nicely written article.Lots of things got cleared

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  vinod

Thanks for liking the post !!

Rajesh
Rajesh
10 years ago

Excellent points written in a concise manner. Thank you.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Rajesh

Thanks for liking the article…

santosh
santosh
10 years ago

Sir,

greetings

I am 25 yrs, Central Services

I availed loan of 24 lakhs from SBI for property purchase (loan issued in month of february 14) this month my bank statement shows deduction of ~13000 towards GEN INSURANCE PREMIUM OF HOUSE

kindly enlighten me how i can opt out of this policy and if there is any formal guidelines (letter) issued by RBI or IRDA which i can use to submit my request to bank.

And also will i get this money back.


regards

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  santosh

Its a case of mis-selling. It seems you have not received the policy yet. You may ask for policy document from SBI. After receiving the policy document, you can return back the same to bank within 15 days which is called Free look up period. Bank will refund the premium after deducting administrative charges.

As per IRDA guidelines free look up period starts from date of receipt of policy in customers hand not from date of issue of policy therefore while accepting policy kindly mention clearly the date and time on acknowledgement so that there is no dispute on date of receipt of policy.

Check following IRDA link

http://www.policyholder.gov.in/Free-Look__Period.aspx#

Vishwas Mandpe
Vishwas Mandpe
10 years ago

Hello,

I have obtained a home loan from SBI, one installed has been disbursed, now they are asking me to get a property insurance saying it is mandatory as the construction work is more than 80% done and without it they will not disburse the amount.

Please advise.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Vishwas Mandpe

Banks confuse Property Insurance with Home Loan Protection Plan. If bank is insisting on Home Loan Protection Plan then you may refuse the same. It is not mandatory.

In case bank is asking for insurance of structure against fire, perils, earthquake etc then i would suggest you to go ahead and buy this policy. The premium is not high but it will protect your property from unforeseen events. For 1500 sqft flat, premium will be approx Rs 4500 i.e. Rs 3 per sqft.

Ravi
Ravi
9 years ago

Very very informative info..THanks a Ton

Kumar
Kumar
9 years ago

Hi Nitin,

Thanks for the post. Its really very informative.
I am currently in process of taking home loan from HDFC. They are asking me to go for home loan protection plan, however i am already having a term insurance which sum assure greater than loan amount. Shall i go for another term insurance or are there any better alternatives outside which cover home as well as owner insurance?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Kumar

Ideally you should be covered equal to 10 times of annual income through term insurance. If you feel that you are under insured then you may opt for additional cover.

Term insurance is best way to hedge risk. I will not suggest any other product.

Kumar
Kumar
9 years ago
Reply to  Nitin Bhatia

Thanks for the reply sir. In your opinion, which is the best term insurance for a couple with additional rider like accident etc.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Kumar

You may select from either of following
1. HDFC Click2Protect plus
2. SBI e-shield
3. Max Life term insurance cover

hahahaha
hahahaha
9 years ago
Reply to  Nitin Bhatia

I read in your posts that you have taken above term policies. My question why having multiple term insurance is better than one with large sum?

what is the advantage as premium will be slightly higher?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  hahahaha

In India objective of insurance company is how to reject claims based on frivolous grounds rather focusing on how to clear fast therefore to hedge risk it is not advisable to put all eggs in 1 basket. Imagine i am paying huge premium for 10-15 years and then at the time of claim by my family it is rejected on some pitty grounds therefore i bought 3 policies to hedge my risk. Though premium will be high but i bought peace of mind.

Rajneesh
Rajneesh
9 years ago

Hi Nitin,
Is there any term insurance plan with critical illness rider? Please inform me

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Rajneesh

You may check SBI Life – Smart Shield.

Aks
Aks
9 years ago

Hi Nitin,
Great article. I wish I had read this before going for such policy. Request you to help me out with my problem.

I took a home loan from HDFC Ltd and HLPP plan from HDFC ERGO. After around 1.5 years, I shifted my home loan to another lender. I asked HDFC Ergo to refund the balance premium amount and also to provide the calculation sheet for the same.
They have provided an excel sheet containing details of the HLPP, main applicant, co-applicant and a table showing some random deductions and retentions to arrive at the net refund amount. I have following issues:

1. For 1.5 years period, they have deducted 40% of the premium amount. Is this the norm?

2. The first time I asked them for the calculation sheet, the details about the co-applicant were all wrong. I pointed that out and asked them to correct it and send me the corrected sheet. The new sheet that they have sent specifies the name of the co-applicant as “XYZ” and the DOB is still wrong. Should this be a reason for me to doubt the calculation sheet provided to me?

Thanks in advance.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Aks

1. The one time premium of Home Loan Protection Plan is paid at the time of issue of policy. This amount is added in Home Loan amount and is charged along with EMI. Since you are paying interest also on this amount equivalent to Home Loan Interest Rate therefore you observe 40% premium amount deducted in 1.5 years but fact of the matter is that this amount also include interest paid by you therefore looking high.
2. Its a typo error. Data Entry Operators goof up sometime.

sunil
sunil
9 years ago

hello sir,
I saw your disadvantage s of HLPP, am planning to get a home loan in sbi from builderside,as am planning to buy a flat, as you said lending bank cant force us to get HLPP from there end. can we directly say no to bank propasol of HLPP, it doesn’t affect on our home loan approval? mean to say chances of rejection for home loan
and secondly Outside “pure term insurance” means who all providing this? and whom to contact
Regards,
Sunil

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  sunil

You may refuse to avail HLPP. It will not impact Home Loan approval as it is separate process. HLPP is pushed by bank branch as they have insurance targets. Branch people cannot impact your Home Loan approval process as there is seperate backend team for same.

Almost all insurance providers provide pure term insurance plan. You should buy online as premium is much less for online product with same features as online plan. You may buy either of following

1. HDFC Life Click2Protect
2. SBI Life eShield
3. Max Life – Online Term Plan (Basic Life Cover)

Dhaval P Doshi
Dhaval P Doshi
9 years ago

Hello Sir,

You are like an angel or can also say a God (who guide their children for “NOT to dig their own Grave”) to those who are literally i can use this word ‘gets SCREWED’ by all the attraction of buying a house without proper income.

THANK YOU SO MUCH for COMING to my life @ the right moment WHERE I was also about to dig my own grave for me. Frankly saying NO WORDs are enough for your precious inputs on HOME LOANs.

God may give you everything in your life. AND I PLEASE request you to continue blogging by your valuable & precious INPUTs.

Thanks alot to my destiny also who connected me to your BLOG.

Thanks & Regards,
Dhaval Doshi
(Technical Lead – Microsoft Technologies).

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Dhaval P Doshi

Thanks for your words of appreciation. It is quite encouraging and motivating. Thanks again.

Ashish
Ashish
9 years ago

Your blog is so nicely presented that there remains no confusion or doubt. I understand a lot of effort must have gone in the analysis and the presenting the same in words.
Thanks a lot. I had not opted for this insurance when I borrowed the loan but till this day, I was in doubt it I have taken the correct decision. But now no more doubts.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Ashish

Thanks for liking the blog and your kind words !!!

Shrikantr. Rao
Shrikantr. Rao
9 years ago

Dear Nitin, Excellent & informative article. I have done all the things you’ve said should not be done. And now I am on the verge of doing the same mistake for an investment flat am in the process of buying when I read your article. Kindly suggest a cheap, all inclusive life term cover along with property insurance for my investment flat. Many thanks. — Shrikant Rao.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Shrikantr. Rao

Thanks for liking the post. You may opt for 2 policies from either of following online term insurance plans
1. HDFC Click2Protect plus
2. SBI e-shield
3. Max Life term insurance cover

For property insurance, you may check ICICI Home Insurance Policy.

SrK
SrK
9 years ago

Hi Nitin,

First of all, i would like to thank you for the information you have provide, its very beneficial. My query is that if there is joint ownership in a property and the co-owner is A & B (spouse) and A take a HLPP from HDFC. The nominee would be B, now if in the death of A, would the loan amoumt get NIL or B will have to pay half of the loan amount considering B being the 50% owner of the property. Can you clear my doubt?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  SrK

Very good query. In this case, if only person A has opted for HLPP then only the proportionate Home loan amount of person A will be cleared by the policy provider. Until unless specified in Home Loan Agreement, Home Loan is in equal proportion between co-borrowers. Person B has to still clear off his/her Home Loan amount due.

In case both the co-borrowers opt for HLPP and Person A die but person B survive then insurance provider will clear entire loan i.e. Full Loan Amount.

kannan
kannan
9 years ago

Nice article for those who are searching for home loans like me and thank you for the wonderful post. I am currently taking a home loan from hdfcof 22 lacs and my bank asking me to take HLPP and they are telling this HLPP will have insurance coverage for the home rather than person. Do we need to take insurance for the home? is it compulsory ? or can i go for term insurance rather than home insurance ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  kannan

Banks confuse customers with financial terminology. Home Loan Protection Plan as the name suggest is Home Loan Insurance which you should avoid. Home Insurance is insurance of immovable property/structure which is cheap and cost just few thousand rupees. You should avail Home Insurance but avoid Home Loan Insurance. Instead of Home Loan Insurance, you should opt for online Term insurance cover which is much cheaper.

Youu should also buy Home Insurance as it will safeguard your property against any natural calamities.

Meena Jangir
Meena Jangir
9 years ago
Reply to  Nitin Bhatia

Sir, I had taken HDFC home loan in 2010 and HDFC Life Policy was given to me. But I was unable to continue it after 2 and half years because of my husband’s accident. Further they asked me to fill a form demanding reason for sudden discontinuity and hence I filled that form but now they say that the policy has been lapsed. Also when I inquired at the nearest HDFC Life center, I came to know that a cheque of nearabout 4,000 was sent at my permanent residence(Jaipur). I currently reside in Pilani but
I didn’t find that cheque. So, I want to know :

1) How can I get the amount ( 55,000) of 2 and half years back?
2) Can it be continued somehow? or if continued would it be beneficial?

Kolli
Kolli
9 years ago

Hi Nitin,

Thanks a lot for the helpful info. I got to know from Agent who helped me in getting SBI home loan says Property Insurance is mandatory and i need to take for the loan tenure. SBI is quoting 29,100 or else i need to submit any other property insurance submit. What is the best property insurance available for 20 years. Thanks in advance

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Kolli

As i understand, agent is referring to Home Insurance which is basically a cover to protect structure against natural calamities. Generally Home Insurance cover is issued for 1 year & renew every year or you can also opt for long term cover. Premium is also very nominal i.e. few thousand rupees p.a. You can buy Home Insurance from ICICI Lombard or HDFC Ergo

Prashanth
Prashanth
9 years ago

Hello Nitin, First of all, thanks for this wonderful post. I am availing a home loan from an NBFC. They tried to add a HLPP, which I refused based on this article.

Now, what is the purpose of banks holding the paper when it is in my name if there is no lien? Atleast that’s what they said when they tried selling the HLPP. That there is no lien, hence we should buy HLPP to cover their loan. My disagreement was that the loan document itself gave them the first right on property until loan was cleared in full. Was I right in saying that?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Prashanth

Your understanding is correct. Lien or No-lien, till original property documents are with bank the loan is secured and bank can recover dues in case of default.

HLPP is highly profitable insurance product and easy to sell compared to other insurance products. Bank executives receive hefty incentives on HLPP therefore they push HLPP very aggressively. If you wish to cover your Home Loan then you may buy much cheaper online term insurance plan.

Shyam
Shyam
9 years ago

Hi Nitin. Very informative post. I took an LAP pretty recently from an NBFC for 13.5 and ended up paying nearly a lac against insurance for 15 years. Outrageous. I requested them to cancel but they kept insisting that it was mandatory to take an insurance. Please advice how to get this closed. Will I be able to surrender this policy? What are the ways. Your advice would be highly helpful to me. Many thanks in advance.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Shyam

You can cancel or return the policy during free look up period of the policy which is normally 30 days from the date of receipt of policy document by the customer. You may check your policy document, if it is still under free look up period then you may surrender and your premium will be refunded after deducting nominal administrative charges. If free look up period is over then unfortunately nothing much can be done.

Arpit
Arpit
9 years ago

I recently took home loan from HDFC Ltd. They informed me abt HDFC ERGO Home suraksha plan but I dint opt for it. U hv very well covered the advantages of term insurance over HLPP.
My doubt is term insurance only covers claim under death while HLPP covers death+accident+critical illness+fire+theft. So in a way, HLPP covers better as compared to only accident cover in a term loan. Your views on this?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Arpit

There are no free lunches in this world. Basic Home Loan Protection Plan can be claimed only in case of unfortunate event of death of insured. Other riders like accident, critical illness, Home insurance can be added by paying additional premium. One more imp point you missed that Home Loan Protection Plan does not cover death due to natural reasons or suicide which is biggest negative of Home Loan Protection Plan (refer my post). Few riders like Job Loss etc increase premium by substantial amount but if you check the fine print of the policy, you will know that only 3 EMI’s will paid by Insurance provider in case of job loss & job loss should not be on performance issue but insured person is under impression that whole loan amount will be paid off. Fire and Theft can be covered under Home Insurance policy which cost only few thousand bucks a year.

You can also buy term insurance with riders like accidental benefit, critical illness etc and can compare premium and other benefits vis a vis Home Loan Protection Plan on apple to apple basis. The incremental premium in Home Loan Protection Plan is high compared to Term Insurance considering the fact that coverage in Home Loan Protection Plan is depleting in nature.

SrK
SrK
9 years ago

Hi Nitin,
The information you provided is very helpful. I have a doubt regarding policy. I am currently residing at my parental home and recently purchased a flat. If i buy a policy with my parental address proof as i still have to change the address on my documents. Can this affect my claim settlement in future, as my address will be changed during claim?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  SrK

Address change will not impact policy or any future claims. You should inform your insurance provider about current address as and when your address changes.

RAJDEP
RAJDEP
9 years ago

THANKS FOR HELPING THE MASS WITH YOUR INNOVATIVE AND HELPFUL IDEAS

Devendra Singh
Devendra Singh
9 years ago

In Home loan Fire or Accidental Insurance policy is separate

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Devendra Singh

Instead of separate Fire protection policy, you may avail comprehensive Home Insurance policy. Premium is not that high.

Sanjay
Sanjay
9 years ago

Hi Nitin, I am planning to take Home loan from St. Chartered bank. Post pating procesisng fees and franking changes, now the bank is telling me that the taking a home/ property protect isurance (Not Home loan protect insurance) is compulsory. I doubt that it is so. Additionally the soicety in which I have bought this re-sale flat has already taken property protect insurance. Still Bank is insisting me to take this insurance. Is there any provision per RBI which mandates customer to buy such insurance? Please guide me on this issue.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Sanjay

It is advisable to buy Home Insurance and is quite cheap. If the society has taken property protect insurance then you can submit copy of same to bank. There is no RBI guideline but you can check your Home Loan Agreement, there must be 1 clause regarding Home Insurance during mortgage period.

Dipak Chavan
Dipak Chavan
9 years ago

Dear sir i have downloaded the brochure for HDFC click2protect plus and it had showed the death benifit as Single Premium Policies and for regular Premium Policies
Highest of: Highest of:
FOR SINGLE PREMIUM
1)125% of Single Premium
2)Sum Assured
FOR REGULAR PREMIUMS
1)10 times the annualized premium
2)105% of all the premiums paid as on date of death
3)Sum Assured

I am very confused that why they have made point1 for single premium policies and point 1&2 for regular premium policies As the SUM ASSURED AT ANY POINT IS HIGHEST IN BOTH CASES.Is there any hidden agenda for it to give very low benefit .Moreover they have not mentioned anything about natural death under which circumstances of death benefit is payable.can u please study the online brochure and guide us.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Dipak Chavan

You need not to worry as death benefit is highest not lowest of 1 & 2 for single premium and 1, 2 & 3 for regular premium. Sum assured will always be highest among other options. This clause is inserted just to safeguard against any higher claim against the policy. All type of natural deaths are covered in term insurance policy.

Manoj
Manoj
9 years ago

Dear Sir

I have oppted for PNBHFL home loan for 30Lacs and they have included insurance premium of 90000 as a EMI in my sanction letter. I called the relationship manager and informed them that I am going for HDFC click2project plus for my insurance and asked them to exclude, but they are saying that its mandatory to take the Home loan projection plan either full payment or partial. So is there any provision per RBI which mandates customer to buy such insurance? Please help me on this.

Regards
Manoj

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Manoj

As per IRDA guidelines any type bundling and cross selling of financial products including insurance is UNFAIR commercial practice without the consent of the user. It is illegal and you can complain to IRDA. Please find following link

http://www.irda.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo1611&flag=1

You can also tell your relationship manager that you know the rules and still if he will insist selling this insurance product to you then you will complain to IRDA regarding forceful selling of insurance product and will also return the policy during free look up period of 30 days from date of receipt of policy therefore it is better to exclude it from Home Loan.

Manoj
Manoj
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin.. for your valuable suggestion. I have explained the same to relationship manager they have excluded the life insurance from my Home Loan but they have insisted me stating its mandatory for me to take the Property Home loan worth 10K (ICICI Lombard) for one time.. So please advise.

Regards
Manoj

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Manoj

It is advisable to take Property Insurance.

Jagadish
Jagadish
9 years ago

Dear Sir,
I Have planned to take Home loan from SBI for 15Lakhs but the Branch manager is insisting for taking Home Life Insurance of SBI -Smart sheild which is costing Rs.52000 (single premium) for tenure of 20 years,He is telling it is mandatory to take insurance along with home loan ,Please advise me for what to do.

Regards,
M.Jagadish

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Jagadish

As i clarified in my other comments also that As per IRDA guidelines any type of bundling and cross selling of financial products including insurance is UNFAIR commercial practice if such products are sold without the consent of the user. It is illegal and you can complain to IRDA regarding the same. Please find following link

http://www.irda.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo1611&flag=1

You can also tell Branch manager that if he will insist selling this insurance product to you then you will complain to IRDA regarding forceful selling of insurance product and will also return the policy during free look up period of 30 days from the date of receipt of policy therefore it is better to exclude it from Home Loan.

Santosh Balakrishnan
Santosh Balakrishnan
9 years ago
Reply to  Nitin Bhatia

Dear Nitin, I reside in Goa. I have been asked to take property insurance for the home that I have mortaged with them. Quotation of 13K for 10 years.

Is this mandatory?

IRDA/ RBI approves this?

Nitin Bhatia
Nitin Bhatia
9 years ago

Property insurance is for structure/property against any natural calamity etc. It is advisable to opt for it and is mentioned in Home Loan Agreement.

Mahesh Dora
Mahesh Dora
9 years ago

Dear Mr. Nitin,

Please help me to understand the difference between property insurance & Life insurance.

I opted home lone from axis bank of 36 Lacs & they are giving me four different choices.

1. House Loan amount with property Insurance & Life insurance – 3671518 with a EMI Of – 35797

2. House Loan amount with property Insurance – 3611603 with a EMI Of – 35212

3. House Loan amount with only Life insurance – 3659915 with a EMI Of – 35683

4. House Loan amount with out any insurance – 3600000 with a EMI Of – 35099

please guide me which option to choose because bank also mentioning in the terms & conditions that it is mandatory for the borrower to obtain property insurance.

Thank you in advance for your advise.
Regards,
Mahesh Dora

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Mahesh Dora

You may go for either option 4 or option 2. Property Insurance is to insure flat/house/structure against any natural calamities, fire or other perils. Whereas life insurance is insure Home Loan of a borrower. In unfortunate event of death of a borrower, balance Home Loan amount is paid from life insurance.

It is advisable to opt for Property insurance and is sort of mandatory as it is mentioned in Home Loan Agreement also.

Mahesh Dora
Mahesh Dora
9 years ago
Reply to  Nitin Bhatia

Dear Mr. Nitin,

Thank you so much for information.
Your blogs are really helpful.

Regards,
Mahesh Dora

Mohan Kumar
Mohan Kumar
9 years ago

I had taken a home load 6-8 years back from ICICI and at a floating interest rate. As the interest rate went up I recieved updates on increase in tenure and sometime they asked to take an increased EMI to avoid increased tenure. And the interest rate went up to 14.25% and over last year or 2 the interest has come down but my floating interest is stuck at 14.25%.
I recently checked with ICICI asking them to revise my interest rate and they tell me I need to pay around Rs.4500 as processing fee to change the interest rate + need to take a home loan protection insurance policy costing around Rs.33,000 which will be for a 5 year term. And they insist that the insurance policy is mandatory. I think this is unfair, first that floating interest rate only floats upwards and 2 mandating an insurance policy which is pretty expensive in comparison to a term policy, which is what might be required to cover the loan value. Considering the loan outstanding is not much just around 8Lks, I dont require additional coverage to risk management.
Please let me know is there anything I can question the bank on why the floating interest rate was not revised when the interest rate fell? and why do I have to take an insurance policy?

Your advice on this is greatly appreciated.
-Mohan

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Mohan Kumar

Reg Interest rate, it is governed by Home Loan agreement therefore 1st you can give request to shift your Home Loan to Base Rate and then pay conversion fees to reduce ROI.

As i clarified in my other comments also that As per IRDA guidelines any type of bundling and cross selling of financial products including insurance is UNFAIR commercial practice if such products are sold without the consent of the user. It is illegal and you can complain to IRDA regarding the same.

Mohan Kumar
Mohan Kumar
9 years ago
Reply to  Nitin Bhatia

I checked my home loan agreement, and it is under Floating reference rate, while the interest applicable changed only as long as the interest rate increased and peaked at 14.5% and but downward revisions never happened. And the bank is asking me to pay the conversion fees to change.
Is that right? Shouldn’t the downside revisions should also be reflected?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Mohan Kumar

Revision of Base rate is at the sole discretion of bank and depend on cost of fund. Best solution is to pay conversion fees and reduce ROI.

Harsha
Harsha
9 years ago

Hi Nitin,

I am thinking of going for a home loan insurance that has critical illness covered too. Do we have any such insurance policies?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Harsha

You have not mentioned policy name. Critical illness can be provided as add-on depending on risk profile of insured.

Fatima
Fatima
9 years ago

I want to transfer my home loan from hdfc to sbi so sbi is asking to take home insurance and telling it is complasry so shoud take it

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Fatima

As i mentioned in my other comments as per IRDA guidelines Home Loan insurance is not mandatory. I will not suggest, you may buy cheap online term insurance plan.

Fatima
Fatima
9 years ago

Title search and intimation to mortgage documents have been asked for by ICICI bank. What is it, where do I get this and how much does it cost? Do I need a lawyer or could I get this document directly? Also the bank has asked for processing fees of 0.3 percent if top up not availed. Please advise.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Fatima

Title search is done by bank’s lawyer & MODT or Mortgage intimation is also executed by bank. I don’t know why they are asking you to provide these documents. If you are in Maharashtra then there is one more additional step of Mortgage intimation to sub registrar which is the responsibility of borrower therefore You may check & clarify with bank reg all these points.

I am not aware of 0.3% processing fees for not availing top up. You may request bank to give it in writing and pay this amount only through cheque in favor of bank if any such charge exist. Sometimes DST’s of bank seek additional amount which is illegal i.e. sort of bribe.

Fayyaz
Fayyaz
9 years ago

I want to know what is the difference between ICICI bank and sbi bank both interest rates are same .Only one thing is there ICICI has not complasry for insurance and in sbi insurance is complasry. Which would u recommend?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Fayyaz

Insurance is not compulsory in either ICICI Bank or SBI. I will prefer SBI.

Fayyaz
Fayyaz
9 years ago

Thanks a lot. Your blog is very helpful .

Fatima
Fatima
9 years ago

Can u tell me till what percent rbi will cut its rate .so should we change our bank now or should we wait my home loan is running with hdfc bank and want to transfer to sbi.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Fatima

Home Loan interest rate is decided by Banks or HFC’s, RBI only change key policy rates. Depending on your current Home Loan Interest rate, you may transfer to SBI.

PankajRai
PankajRai
9 years ago

Thanks Nitin. What a master piece articles you have written. I am also about to finalize my home loan where as bank executives are pushing very hard to take their choice of insurance.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  PankajRai

Thanks for liking my posts..You may share my website link with your friends and family members through Facebook, Google+ or Twitter.

Rutul patel
Rutul patel
9 years ago

I would like to say thanks to “MR. NITIN” for this really helpful article. I got home loan of 30 lacs and bank is forcing me to take HLPP which costs 61,000 for 5 years. But, after reading your article I clearly get idea that I must go for term insurance plan. Thank you again for valuable guidance.

Fayyaz
Fayyaz
9 years ago

I have a loan from hdfc of 30 lacks it was taken on September 2013 the remaining amount is 292800 . I want to pay 5 lacks from my saving account .So can I pay it and what proof I have to take the bank .Is there any charges for it .

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Fayyaz

For floating interest home loan there are no charges. Some banks may ask for bank statement for prepayment. You can carry 1 govt issued id proof and cheque book to prepay.

Fayyaz
Fayyaz
9 years ago

The remaining balance is 2928000 not 292800.

Meena Jangir
Meena Jangir
9 years ago

Sir, I had taken HDFC home loan in 2010 and HDFC Life Policy was given to me. But I was unable to continue it after 2 and half years because of my husband’s accident. Further they asked me to fill a form demanding reason for sudden discontinuity and hence I filled that form but now they say that the policy has been lapsed. Also when I inquired at the nearest HDFC Life center, I came to know that a cheque of nearabout 4,000 was sent at my permanent residence(Jaipur). I currently reside in Pilani but
I didn’t find that cheque. So, I want to know :

1) How can I get the amount ( 55,000) of 2 and half years back?
2) Can it be continued somehow? or if continued would it be beneficial?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Meena Jangir

1. As i understand it is Home Loan Protection Plan. I suggest you to email to customer care of HDFC Life and share all the details. You can get address updated in the records of HDFC Life and then request for refund of amount due.
2. I need to check policy document to answer this query.

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