When providing home loan, lenders insist that the primary borrower has a life insurance policy. The borrower can either obtain a life insurance plan from the lender or provide a copy of an existing policy if they already have one.
However, if there is joint applicants they must also have life insurance in a home loan. The recent deaths due to covid-19 have shown that it is always better to reach all borrowers.
Take the example of a husband and wife who took a home loan together a few years ago, where the wife is the main applicant since both were working at the time. The lender forced her to take out a life insurance policy, which she took advantage of. The husband was a co-applicant and the lender did not insist on his life insurance.
A few years later, the wife stopped working on a loan. The husband continued to pay an equal monthly contribution (EMI).
During covid, her husband passed away. The wife (main applicant) is now alive and insured. But the earning member passed away without any insurance to take care of the family’s responsibility.
Such cases are common, especially among couples where the husband owns the business and the wife receives a salary. Banks offer better rates for employees as well as women.
Take the State Bank of India, for example. According to its website, out-of-wage loans are 15 basis points (bp) more expensive. It also offers a 5 bp concession to women. One basis point is equal to one hundredth of a percentage point.
Therefore, it is best to take out life insurance policies for all co-borrowers, and the guaranteed amount should be large enough to cover the home loan and provide for the family in the event of the death of the breadwinner.
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