All You Need to Know About Buying Home Insurance from Your Designated Bank

Posted on: Apr 26, 2023 | 3 mins | Written by: HDFC ERGO Team

All You Need to Know About Buying Home Insurance from Your Designated Bank

It is not uncommon for some banks to force their customers to buy a home insurance policy from them while applying for a home loan. As a customer, should you succumb to the pressure, or are there any alternatives? Here is all that you need to know about it.

Is it mandatory to buy home insurance from your bank?

The simple answer is no. It is not mandatory for you to buy a home insurance policy from the bank from which you want to avail of a loan. Irrespective of what a bank official might claim, neither the reserve bank of India nor the insurance regulatory and development authority of India has made it mandatory to buy insurance from a bank during the loan process. Thus, banks cannot use any such clauses to force you to buy a policy from them. And if they quote the RBI or IRDAI, it is wrongful usage of information.

However, a lot of banks are quite stubborn and ask you to do the same. It is primarily to ensure that their investment in the loan is secure, should you fail to repay. Alternatively, banks usually have tie-ups with insurance providers, which can enable them to earn a commission from the provider.

Internal guidelines of banks

While it is incorrect for banks to use the name of RBI and/or the IRDAI to sell insurance policies to home loan buyers still the banks have the authority to make their internal guidelines when it comes to selling home loans. The banks can choose to make it mandatory for home loan applicants to buy home content insurance. But strictly not under the name of the RBI or IRDAI.

If a bank does pass an internal guideline for home loan buyers to opt for insurance, they cannot force customers to buy the policy from them. Customers should have the flexibility to choose the insurance policy and provider as per their choice.

For home buyers who are wondering if is insurance mandatory for home loan, the simple answer is no. It is not mandatory. There is no rule or regulation that requires home buyers to opt for a home insurance policy. However, buying one can make a lot of difference. It is a financially sound idea to implement to protect your loved ones and your home from any unforeseen circumstances.

On the other hand, it might be a wise decision to look for different options than relying on the bank for insurance. Usually, the premiums for a policy provided by banks can be a bit higher than other insurance providers. If you want to make the most out of your policy, comparing policies from different insurance providers might be a good alternative.

What should you do if your bank wants you to buy home insurance from them?

If you are in a situation where the bank imposes you to buy property insurance from them, there are different ways to handle it. For starters, if you find that there is a negligible difference between the premiums of the policy that the bank is offering and that of other insurers, it might be a sensible decision to proceed with the bank as they will offer greater convenience.

On the other hand, if there is a considerable difference in the policy premium as well as coverage on offer, you can choose not to proceed with the bank. You can exercise your option to buy the policy from elsewhere and inform the bank official of the same. And if they are still adamant, you can file a complaint with the branch manager.

If complaining to the branch manager yields no result, you can let them know that you intend to file a complaint with the banking ombudsman. A lot of banks will stop forcing you to buy a policy at this point. However, should they still continue to do so, you can opt for a different bank to buy the policy.

If you do not want to change the bank for your home loan, you can opt for the policy from their preferred insurance provider. You can make use of the 15-day lookout period, within which you are allowed to change the insurance provider of your property insurance. In such instances, the existing insurance provider will refund the policy premium after deducting the essential charges. But you must have a home insurance policy from a different provider before you decide the cancel the policy.

Prominent reasons to buy home insurance

Here are some of the most compelling reasons to opt for home content insurance for your new home.

1. Much-needed protection:

Unlike the most common notion, a home insurance policy offers a lot more protection than just protection against physical damage. The policy protects the contents of the house as well. A comprehensive plan can protect things inside your house from theft or burglary. In the event of any natural calamity, there can be a lot of damage to the house. The policy will protect the house in such an event.

2. Affordable:

A home insurance plan is quite affordable as well. By paying a small premium for the house and its contents, you can safeguard your investments and never have to worry about anything bad happening.

3. Compensates for losses:

When something bad does happen, such as natural calamities or theft, the policy has your back. It will compensate you for the losses due to the reasons outlined in the policy. You can use the compensation to repair or refurbish your house.

Conclusion

Neither the IRDAI nor the RBI has made it mandatory for customers to buy home content insurance from banks while applying for a home loan. As a consumer, you can choose any insurance provider of your choice to buy the policy.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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