Whenever you take a home loan, the lending bank insists on an insurance policy to cover risks to your home. And before you know it, the bank would have deducted the premium amount from your account.
In most cases, the bank neither discusses the various insurance options available to you nor looks at what is best suited to your needs. You, as the policy holder, does not even get to choose or understand the policy conditions, what it covers and does not cover. The choice of the insurer and the policy will mostly depend on the insurance company with which the bank has a tie-up.
These are practices inimical to consumer interest and both the banking and the insurance regulators should stop them. And consumers on their part, would do well to insist on choosing the insurance company and the policy that suits their interest best. There are for example, policies that cover only the building, but with an additional amount, cover the appliances too. Similarly, home loan insurances ensure that in the event of the death of the borrower, the remaining loan amount is paid by the insurance company. Some insurance policies also cover disability or illness of the borrower and it should be the prerogative of the consumer to choose what is best suited to her or him.
A letter from a reader explains best, the kind of problems that consumers can face with a wrong policy chosen by the bank. Isha’s husband, working as Vice-President in a multinational company had taken a home loan of Rs 35 lakh. Then suddenly he contracted viral pneumonia and passed away at the age of 46.
Isha’s hopes of the insurance taking care of the huge loan burden were soon dashed — she was told that the cause of death was an illness falling outside the nine major illnesses covered under the policy!
An order of the apex consumer court decided on February 7, 2014, highlights another associated problem. Dr Ajay Singh Bhambri and his wife had taken a home loan, for which the bank insisted on an insurance policy covering the outstanding loan amount in the event of the death of either of the borrowers.
Once the policy was signed and the amount deducted from their account towards the first premium, the couple assumed that the bank had the policy.
Just 12 days after signing the policy, Vandana Bhambri suddenly died of heart attack.
When her husband made the claim, he was told that the policy had not even come into existence because of some pending medical examination.
The apex consumer court too upheld the decision of the insurer, on the basis of a Supreme Court order, in which the apex court had held that merely filing the proposal form and paying the premium did not create a binding contract (FA NO 881 of 2013).
What is unfortunate in this case is that the insurance company had taken advantage of its own inefficiency, resulting in delays in issuing the policy. The IRDA Regulation on the Protection of the Policy Holders’ interests ( PPHI), clearly states that "proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer".
Besides, the very fact that the consumers were unaware of the process of completion of the contract or the requirement of medical examinations for the policy that was handed to them, also indicates a violation of this Regulation, which requires that the insurer gives all relevant information to the consumer.
So if you are going for a home loan insurance, look at the options yourself, understand the policy conditions and make an informed choice.