When taking a home loan, ensure all co-borrowers have life insurance

When giving a home loan, lenders insist that the primary borrower should have a life insurance policy. A borrower can either take a life insurance plan from the lender or submit a copy of their existing policy if they already have one.

However, if there are co-applicants in the home loan, they, too, should have a life insurance. The recent deaths due to covid-19 have shown that it’s always better if all borrowers are covered.

Take the example of a husbwife who took a home loan together several years ago, where the wife is the primary applicant as both were working then. The lender forced her for a life insurance policy, which she availed. The husbwas the co-applicant, the lender didn’t insist on him taking life insurance.

After a few years into the loan, the wife stopped working. The husbcontinued paying the equated monthly instalment (EMI).

During covid, the husbpassed away. Now, the wife (primary applicant) is alive has an insurance cover. But the earning member passed away without any insurance to take care of the family’s liability.

Such instances are common, especially among couples where the husbis a business owner the wife is salaried. Banks offer better rates to salaried also to women.

Take the example of the State Bank of India. According to its website, the loans to non-salaried are expensive by 15 basis points (bps). It also offers a 5 bps concession to women. One basis point is one-hundredth of a percentage point.

It’s, therefore, best to take life insurance policies for all co-borrowers, the sum assured should be large enough to cover the home loan provide for the family in case the breadwinner dies.

(Do you have personal finance queries? Send them to [email protected] get them answered by industry experts)

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