Have you even seen cases where when a person wants to get a home loan, and the bank or the lender says that taking some kind of ULIP policy or some other kind of insurance product is mandatory if you want the loan to be approved? Most of times, banks impose this restriction in the final stages of loan approval process because that’s the time when most of the customer will not reject the option and will forcefully go for it, because they don’t want to lose the home loan for this tiny roadblock.
If you are thinking about 50 lacs of home loan, you will not get stopped by this 40,000 per annum premium policy. Here is a case which was discussed on our jagoinvestor forum.
I recently planned to buy a home. So, after market research I approached SBI bank. But the manager informed by saying that ‘I need to take SBI Insurance along with home loan’ else will not sanction SBI home loan. Please let me know whether is it the case with SBI home loans?
Cross Selling is Unfair – IRDA
Some customers falls for these kind of gimmicks, but in reality there is no compulsion to buy any kind of product with home loan. It’s just a marketing gimmick and a way to exploit people. IRDA itself has clarified in its circular that this kind of bundling or forced selling is not fair and should be stopped. However banks still continue to ask customers to buy the insurance along with home loans and ill treat them.
Tying is defined as two or more products packaged together where at least one of the products is not sold separately while Bundling occurs when products are packaged but are also available separately. There could be various issues of concern for the consumer that arise from cross-selling. Packaging two or more products could become unfair to the consumer when it impedes his or her choice or makes price comparisons difficult or impossible.
One of the major concerns is bringing in transparency to prevent unfair commercial practices. At the same time, cross-selling facilitates service providers to use existing channels to reach out to those who are looking to buy insurance products. It is, however, necessary to ensure that the consumer is not put to any kind of disadvantage because of the packaging.
J. HARI NARAYAN
CHAIRMAN (IRDA)
So what’s the way out? It might be, that if you are careless on documentation front, the bank might sell you the policy and you come to know about it very late; like it happened in this case where Axis bank sold life insurance along with home loan to this guy. While you always have an option to go to consumer court over the issue, that comes a little later.
What way you can settle this at the bank level itself? The main idea is to communicate to bank officials that you are not a easy bait and are an informed investor who knows his rights as a customer. Below are a few things you can do in a situation when bank tells you “Sir – Insurance is compulsory along with home loan, else it will not be processed”
What to do when forced to buy insurance along with home loan ? Lets see 4 tips which you can use when you are told by your lender that some kind of policy is mandatory to buy along with home loan.
Option 1 – Directly tell them, you know the rules
One of the simple things you can do is tell them straight forward that you know the rules on this, you are aware about the RBI circular that these practices are not fair and ask the bank for an explanation on how they are still doing it. Also tell them, that you have yourself helped another friend of yours to get a home loan without the bundled insurance when XYZ bank asked for it. You can tell them that you have already filed for RTI to IRDA and asked for this, if they want you can bring the RTI reply from IRDA. This first tip itself should be enough for your home loan provider to come to the right path.
Option 2 – Reject the Offer and Wait – They will come back
When you show desperation, they know you will do anything for getting a home loan and that’s one reason why they put forward such idiotic restrictions of taking policies. Another thing you should do in these kind of situations is that you can just reject the offer totally and tell them that you really are not so desperate to get the home loan, you can wait for some months or you already know other bank officials who have not put forward such kind of restrictions . In all probabilities, they will just come on track or if not that time, they will be back to you later saying – “Sorry Sir, we take back that restriction .. blah blah… ” This is exactly what happened with Muthu Krishnan which he shared on this blog some time back
IDBI tried to con me in similar manner. I told them that I don’t need their loan. After two days, they called back and offered loan without insurance which i accepted. Though you are absolutely desperate for loan, do not show it to the banks. The banks are very desperate to disburse loans as it is their livelihood and not ours. They will come around to our terms.
Option 3 – Ask them to give it in writing
The next option is to look at the bank official and ask him to give in writing that “Buying the Policy is mandatory along with Home Insurance” and also tell them you are thinking of inquiring about this with banking ombudsman because you have already filed a case for your friend and got compensation for this. If they are not ready to give it in writing, tell them that you don’t need home loan from them anyways, but you will still file a complaint with Banking Ombudsman to see what can happen and politely ask the official if he can also share his Name, designation and Employee id for additional information.
Option 4 – Take the Policy and return back in Free Lookup period
This is the last option, but if you feel that other options are great but you are victim of family pressure and at this time just need to go ahead even though you are disgusted by this force game, just go ahead with policy and pay the premium for first year. Then be a little alert and make sure the moment you get policy documents, just initiate the process of returning back the policy within the 15 day free look-up period . For those who do not know, the free look up period starts from the day you get the policy in your hands, not from the day you bought the policy. This helpful tip was shared by one of the person who shared his case with ICICI mis selling.
Conclusion
Any kind of loan should not be bundled with other products. Most of the bank officials try to pressurize the customers just to meet their deadlines and targets. So do not fall for forced selling and act like an informed and powerful customer.
Have you come across a situation like this? Can you share?
{ 88 comments… read them below or add one }
Happened with me recently.
applied for ~15L loan from Indiabulls.
After all the processing and submitting the processing charges money, they informed me for compulsory 25 K loan. Even I told they that I know the rules, they created a lot of problems.
However, they agreed to take my case as a big exception.
So arrange for the rest of money.
But once the registry day was approaching ( If I wouldn’t by going for that on time, will loose the booking amount 1L to builder), within last one week time Indiabulls created many problem, and changed a lot of things which they committed that they will take care.
Finally I’ve to loose some money after calling my deal off.
Reason : They didn’t get their cut at personal level due to no 25 K insurance.
Sad.
Good one ! .. thanks for sharing that experience !
This is a major problem! Several of my friends and relatives are victims of this.
Major loan givers like SBI may not yield to option 2 and probably wont care about option 3.
I think option 4 is the most hassle-free option! You get the loan from whomever you, want try option 1 . Bank employees always get jittery when the customer knows the rules. If that doesn’t work exercise option 4.
Of course one must have an alternate policy in place even before we approach the bank so that if we return the banks policy and the information reaches the bank we have the other policy ready!
No Pattu , All the banks including SBI are all afraid of RTI atleast (might not be for banking ombudsman)
.
Pattu
I do not think even option is hassle free. Most of the home loan insurance are single premium policies, not the regular ones. Regular premiums are much higher than the single one.
Manish
Have you calculated,how much difference is the premiums if we go for a normal term cover of the same amount.
A normal term cover with annual premium is way better than an single premium policy.
If I am not wrong there is a discussion on this in the WealthWisher blog
Hi,
Nice tip Manish…
I had taken loan from LIC and did not face any problem incase of my housing loan.I myself had asked for the loan insurance and they said they have stopped it.
But I had gone to avail for locker facility with couple of bank and have been asked to take policy (Ulip or pension plan)by SBI,Axis and BOI.
Atlast I got fed up and ended in not having the locker facility.
Anyways thinking of trying your last trick…
Thats a Tit for Tat trick
Yea .. 4th one is a good one , but you need money in hand and its a bit risky !
I have used a simple tactic, similar to option 2 above. Before you signup for the loan, you make it clear to the representative, that you will sign up to the loan, only if you are not forced to taken any other product, else you are not interested. It worked!
That you did because you knew the rules ! .. Most of the people have no idea that these are all marketing gimmicks !
When a person is taking a home loan, he is already taking a financial burden of repaying the loan in EMI’s.
Opting for any other committed payment along with EMI’s gets burdensome for most of the home loan customers and it is advisable that you dont opt for any policy along with the home loan.
Either tell them that you know the rules or better show them this article…
Yes ! .. agree with that Karan !
There have been cases where you are offered an extra amount as loan to invest in the separate life insurance policy. For instance if your loan is for 30 Lakhs, you are approved 32 Lakhs of loan, so that you can invest the remaining 2 Lakhs in the policy. Crazy. Desperate.
Yes, I am hearing cases like these !
Hi,
I have faced this issue too. I recently took a home loan of 41 lakhs from AXIS bank in Bangalore. Of this amount, Rs.1.5 lakhs has gone just for insurance! The bank told me it was mandatory and so I had to take these insurances.
(I paid Rs.1.1 lakh for life insurance as the bank wanted to make sure that they will get the money back if anything happened to me and an additional Rs.40,000 for property insurance as the bank wanted to make sure that they get their money back if anything happened to the property)!
Kiran
These are just illegal practice, I think you should file a consumer court case against the bank on this
Thanks Manish for the article.
Same thing happend to me and some 3 years back. I approached Indian back for HL, first thing I noticed that they were not willing to given loan even though I had better repaying capacity. They were very lethargic and their attiture was worst. Finally they agreed to give loan and asked to pay 50K pa as ULIP insurance for 12 L loan for 5 years
.
I did not know these rules by the time and I had to accept their loan with the policy. Aftre 3 years my NAV was 130000 and I decided to withdraw it. After penalty of 15% I got 110000 hand. What a waste of my hard earned money just for the bank manager want to meet his deadlines.
You should have resisted it and should have enquired a bit on this . The best thing for new people after knowing this is to tell bank before hand that they are not ready to buy any crap with home loan , if they are ok , then only move ahead . Put the ball in their court !
Thanks for sharing your incident !
For me it turned positive.. for Home Loan bank forced me to buy their shares. At that time I was not having enough money so I was bit hesitated. But then I managed somehow and now this proved a positive investment for me and I am getting good dividend.
Never heard any bank asking to buy shares. Which bank was that?
Are you sure its the bank shares you bought, and not some other product disguised like shares?
I am not sure its really their company shares ? Are you not mistaking it with the UNITS of some ULIP !
When i took a loan from State bank of Patiala, i too was asked to go for a compulsory ULIP/MF/Insurance policy. When i told the manager that i couldn’t afford to long term commitments as i have already taken care of insurance and investment needs. So the manager has to rule out ULIP and MF. He was forcing me to go for an insurance. The cost is 115,000 (Home loan was for 38L). I told him clearly that I can’t afford this much money. So he was ready to club this amount with my home loan. I was shocked, Since my effective home loan would be 39.15L.
. Each time I visit the bank, the manager will talk to me about MOD, But some how I am avoiding it 
I googled and found that , there is an option called “Assignee” in term insurance, By which you can take a regular TERM insurance and make the bank as assignee. So that if some thing happens, The bank would get its money and the rest will go to my nominee (Sum assured – Balance principal) . The manager pretended that there is no such option available. When i showed him the assignee form, He could not force me further. The only compromise which i had to take is to go for Offline term insurance with SBI Life (But SBI life has many rider options which was not available with other online plans)
One more thing the bank manager are insisting is to go for mortgage deed (The bank call this as MOD) in favor of the bank. The manager says this is for the banks safety. This will cost 30 – 50 K in the form of stamp duty and registration charges. If you do this, virtually your loan will be tied up with the bank. It will be a tedious job , if you need to switch a loan to any other bank. The best part of the deal is you need to bear the expenses for “Bank’s safety”. I told the manager i am ready to go for MOD if the bank bears the expenses. I am not so rich to spend for banks safety
Shreedhar
Good idea .. this thing called ASSIGNEMENT is really a nice thing one can use for their home loans , I will do a detailed post on this ! . Did you use this ?
Yes Manish i have used it. It would be great if you could also touch upon the mortgage topic
Thank you for sharing about MOD. we appreciate that.
Could you please brief what is MOD and is it done automatically done by bank if we do not mention?
because i have taken a Homeloan from IDBI bank and would like to understand further.
Thank you.
Hello Gopikrishna,
I guess MOD means “mortgage by deposit of title deed “.
Usually once the banker lends you the money , after registering the house (or UDS in case of new property), the sale deed / title deed will be with the banker. If you take an EC only your name will be reflected in the EC.There were cases of fraud in this method .If you are well connected , you can get a duplicated copy from the registrar office and sell the house to some one else. The buyer may not be aware that there is a loan pending on that house .
To avoid this banks have started adopting MOD. Once the registration is done , they will ask you to do mortgage in favor of the bank for the loan amount. This needs to be executed in the registrar office and it will cost money towards stamp duty,legal charges etc. After doing MOD if you take an EC , your name and bankers name along with the loan amount will reflect in it. So the chances of fraud is minimized.
From the banks perspective its very safe for them. But for us we need to bear the expenses of executing MOD. Moreover when you try to move your loan to any other low cost banker , this MOD has to be cancelled by the old bank. There will be lots of paper work and procedural issues associated with this..
These are the facts which i learned from my experience. I may not be 100 % correct . Please correct if my understanding is not correct
I don’t want self in business of advocating banks but one thing is not clear in above case of SBI branch manager-whether it was Home loan protection Cover or any other insurance policy ?
If bank is asking for Home Loan Protection Cover Policy then I don’t think its bad idea.
Yes the bank manager was asking me to take a Home loan protection cover. But why should i take that ? Its always better to go for a TERM insurance for the amount of loan you have taken. Its very cheap 11,000 pa (SA 38 L, Permanent or partial disability rider for 38 L,Critical illness cover for 7.5L). Moreover if something happens Sum assured – Balance principal will go to my family. Even if change my loan to some other bank, the term insurance will be hassle free.
If i take home loan protection cover (Just a different name for term insurance which covers home loan)
Its mostly single premium policy that means you are struck with it, You can’t move to a cheaper one and even if the service is poor nothing can be done.
I am not sure what will happen to the policy if you change your bank (Do you need to buy one more home loan protection policy from your new bank???)
if something happens only the loan amount will be paid. If something happens when the loan amount is a meager 1 L , just 1 L will be paid nothing else !!!!
Hi Sreedhar,
I think if major part of Term insurance went off paying the loan then it won’t serve purpose of term insurance.
Now a days,insurance companies are much stricter about term insurance plans and its tough to get cover of more than 10-12 times of annual income..so better to cover loan separately.
But, one should agree that such things are individually customized and in real life we need to optimize the things.
We are talking about LIFE Cover policies
I taken a HL from SBI and there was no such compulsion at the time of sanction. After paying 2 EMIs of my HL, one day they issued a policy on my name and deducted premium from my account. All this was without my consent. When i inquired, i was told that for a Loan of 6.5 Lakh, Only Rs 650/- was charged as premium and this is only once ( not per year) and they promised that in case of collapse of building structure due to any natural calamities to my home, i need not pay EMIs further. The same was written in policy letter. So i accepted the policy and did not bothered about Rs 650/-
Ok so that was HOME insurance , not home loan insurance which is related to your life . I think its a good idea to pay Rs 650 for that !
So HOME Insurance is OK ?
I paid some 11000 for it. if its not mandatory, I can surrender it.
I had not exactly the same, but similar experience with ICICI:
In 2008/09, when the home loan interest rates had peaked for existing customers (new customers were still getting loans at lesser interest rates), I asked ICICI why are they not reducing the rates. The response was that if I buy a ULIP of 50K premium, they would reduce the interest rate by 0.5%.
Instead of staying with ICICI, I just switched the home loan from ICICI to BoB.
Haha .. good one .Their one idiotic reply costed them a customer and so much of trust!
I am an ex bank manager and I fully agree with the 4 options suggested. I am of the opinion that the 4th option is disastrous… you will understand why as you read on. However I would like to put forth a possible reason why the bank asks for such a policy.
If the borrower is in his late 20′s or early 30′s the argument I am making may not be valid but for a borrower in his late 30′s or early 40′s, the probability of untimely death of the borrower is high. If the borrower is the sole bread earner of the house, the situation becomes much grim with his death. His survivors are saddled with extra burden of repayment of the housing loan apart from meeting day-to-day expenses. Here is where the utility of the Life Insurance comes in the picture. A policy with death benefit (DB) equal to the loan amount will not only help the survivors repay the entire loan, but also save them some money for survival. Also in absence of the policy, the survivors stand the risk of losing the shelter which is attached with some emotional values. the bank will simply take possession of the house and will dispose it off to recover its dues. What the survivors lose can not be ascertained in monetary terms.
Keeping this in mind, for his own safety, the borrower should take an insurance policy. What type of policy is totally his decision. What is advisable is a TERM policy where a 50 lac term policy is available for as low as 12K p.a. i.e. less than 1k p.m. for a person in late 30′s. Yes if the bank insists on a endowment policy or a traditional product, the bank is not justified or rather the bank is misselling the product. However buying a policy at the time of taking a loan is in the interest of (not the borrower) but that of the survivors.
So my advise to all prospective borrowers is that …. even if the bank does not ask for it… take a TERM policy on the borrower’s life.. it pays in very unexpected and unfortunate situations.
I know I am the only one with contrary view but give it a deeper thought and you will not undermine the importance of this.
I actually agree with you on the need of a sufficient life cover which also covers the house loan . Totally needed . And if a bank can explain it to the customers I am sure a lot of people will go for it , however here banks try to sell useless ULIPs and unsuitable plans , and we are against that ! .
Also the logic is correct, but there is no RBI rule on this and cross selling is not encouraged as practice. Overall I my thoughts are aligned by yours. Thanks for acknowledging !
Completely agree with Manish. Banks can explain the need of term insurance in such cases, but can sell ULIPs against home loans.
When I switched from ICICI to BoB, BoB not only offered lesser ROI, but has also covered my insurance upto the amount of debt for the tenure of the loan. More importantly, I am not paying anything extra for this term insurance.
I have also heard of some other banks asking for getting a term insurance to secure their loans in case of untimely death of the borrower.
But here, you are wrongly justifying banks selling ULIPs.
Where am I justifying ? I am myself against it !
I meant…Mr. “No buddy” and not you
Dear Mr. Mukesh….read what I have written carefully…. I have said that the choice of policy lies with the borrower and that if the bank sells endowment or traditional product it is not justified. I have not said a word about ULIP. All I am advocating is a TERM policy that too for protection of the survivors. I am sorry, if I sound anything else than this. Also I may add that if there is already a existing TERM policy then there is no harm in assigning in the name of the bank while taking a loan rather than taking a new policy. I am in no way justifying a bank…. not in the least. This is the best way to avoid confrontation with the lender.
Manish,
Wonderful tips to avoid paying for bank’s safety, I have successfully used another tip.
I said to Bank Manager that “I have fixed deposit and saving account with your bank, are you willing to take insurance on that so that if bank goes bankrupt, I will not loose money.” As Bank Manager does cannot do this, he stopped forcing me for the HL insurance.
Great one ! ! ..
Actually, savings accounts are insured up to Rs 1L by the government.
If you have a term plan in place, why to buy the insurance from the banks considering they have the safety of getting the loan repaid.
Kindly any experience on this matter?
Yes, you dont need take any insurance policy , these are just marketing gimmicks !
Recently, when I transferred my home loan from IDBI to SBI, I faced the same issue. The branch manager explained me being IDBI different entity, what if it does not provide the documents after loan disbursement, I needed to provide third party guarantee for the period of loan disbursement and the documents released by IDBI to me and submitted to SBI. Alternatively, he asked me to take RINN RAKSHA POLICY from SBI LIFE. It took more than 4-6 weeks to convince the branch manager to drop the clause. During this period, I asked him to showcase one case where SBI has collected third party guarantee having LOAN TO VALUE RATIO is less than 40% and EMI to take home salary ratio is less than 36%. One of the officer from the same branch explained me on the phone that this was required to meet the targets. She also informed me that irrespective documents provided by me they would I did not get the sanction letter. At one point of the time the branch manager informed me that SBI need to cover up the low margin on housing loan by selling insurance policy only. Finally, I had to show him the draft mail ready to send IRDA complaining about illegal practice of insurance selling by SBI LIFE. After reading the draft, he made me to speak to one of the loan officer at RASMECCC, VASHI, who agreed that it was OK, even if I provided the photocopy my existing policy. Surprisingly, then after not a single officer in the bank was interested to know whether the policy is in force or not. All those issues related to non release of documents by IDBI or loan default vanished in the air. Then after, I spread this message to all my family and friends and they used the same idea and got loan sanction from SBI.
Very nice one Manish .. You really acted as a responsible and powerful investor ! .. great one !
Very helpful info Manish, I also faced same problem with SBI , due to lack of information I dropped the idea of loan transfer. But now with your experience I will pursue it again.
Thanks
Great ! .. please do !
Hi Manish
I recently (just last week), I took a home loan from SBI (Max Gain), they forced me to take this Home protection plan costing me about 22K per annum. They said this is mandatory, else my loan won’t get processed. If I did not take this, I had to produce an “guarantor”. I had no choice, because they told me at the last stage of loan processing. Now they say I have to pay for a minimum of 5 years. Before I knew they have this agreement copy stating the EMI amount which also includes this premium. Also, I was not told what other options of Insurance I have as an choice. I would have gone for this if I was a given a proper information and also the choice of plans. I guess I have stuck to option of keeping this for 5 years.. do i have a choice? The answer is “NO”.
You said it happened last week , did you get your policy document in hand ? Because you always have that 4th choice , return back the policy within lookup period and get back your money for premium . In worst case, just leave the policy like that, and dont pay any more premiums , also complain about the bank with banking ombudsman
I can’t stop myself from thanking Jago Investor & all its contributors.
At very right time I received newsletter titled:”4 things to do, when you are forced to buy a Policy with Home Loan !”.
I am facing similar problem with SBI HomeLoan.Please help me with this:
SBI initially sanctioned maximum eliglible Home Loan amount after going through my earning history & potential including all available Form 16 with me.
But now at the time loan disbursement they are citing reason that I dont have complete two financial years Form 16& to compensate that I need to take SBI Rinn Raksha Insurance policy without which they will not disburse loan..
After going through above thread I come to know that it is not mandatory to avail Insurance Policy however…
please help me in knowing that,is it really necessary to have full financial years Form 16, at least of two years employment to get Home Loan from SBI?
I am helpless in producing such forms because my total work experience till date is 1 year 8 months.
Waiting for everybody’s valuable suggestions.
Pushkar
No its not mandatory like that, if a bank is ready to give you home loan on condition of you taking a policy, then it means that you are eligible, they are just exploting your “needy” situation . Just tell them on face , you dont need loan from them because you are getting it from other bank , and they should come back in no time ,trust me .
i too am a victim of this kind of pushing of insurance which actually is of no use to us as end user infact it helps the person processing the loan and his agent who namely is some family member of the person processing the loan.
i was emotionally blackmailed saying that my loan eligibility was considered looking into that i shall be purchasing the insurance which actually does not cover even 10% of my actual loan amount.
i sometimes really am puzzled at the type of methods used by loan processing agencies.infact i would confidently say the bank is also a party to this kind of illegal selling of insurance.
in my case the bank in question was ICICI BANK which i had previously heard of such mischievous operations by their employees. but due to circumstances we also fall prey to such malpractices despite the fact that we do not approve of such behavior from the bank.
i liked ur 4th option that is returning the policy during the free look in period. as here since u have been tricked for buying the policy u too can trick them by returning it back.
my policy amount looted by the bank was Rs 35000 which i shelled from my pocket just to satisfy the officers processing my loan.
if this article would have come earlier i would have saved this money
regards
anil
Why dont you now complain to banking ombudsman on this … I am sure some fruitful results would come !
Hi Balaji,
I too recently got my loan sanctioned from SBI ( Max gain ) from 4th block jayanagar Bangalore branch. I am surprised they did not tell you in advance about the Rinn Raksha Policy for which you have to pay for 5 years. They told me exactly the same but I told them that I have a Term insurance from Aegon Religare for 1 Crore. I wanted to take 50L only but decided to take term insurance for 1 crore thinking it will cover for my house loan of 40Lakhs too. Initially they did not agree and said that I have to take insurance from them. Later they asked me to write a letter to Bank manager about it and after I gave them the letter, they sent it to higher authority and I got my loan approved. It just took 1 week extra but that’s ok right
.
All I wrote in the letter is that I have a term plan that ensures that my nominee will be able to pay the outstanding loan amount easily and hence I do not wish to take any insurance policy form bank. Thats it. Since it was in writing, i guess they could not do anything.
It is much better to take a term policy than bank insurance as the amount received from bank insurance is equal to outstanding loan amount which keeps reducing all the time. The bank even tried to tell me they both are same for which I said that for them to be same, I will have to buy their policy and die immediately
So, I would suggest you refuse the bank policy and get a term policy form any insurance company you like and just provide proof for it to SBI by giving a written letter. You don’t even have to “assign” the insurance to banks name. Just the letter.
Last month I took home loan from ICICI, I faced the exact same problem. I directly called the Branch Manager, he told its mandatory, I replied him that I am going to send an email to ICICI senior managers/CCing RBI to confirm about this. With in two days he issued me a new sanaction letter without home insurance.
Happened to me as well but not with HL though with PL, when bank rep. came for signing all docs. they bought the HDFC ERGO Policy as well and asked me to take a policy to cover you PL.
I bluntly said to him, I don’t need any loan and denied signing any policy doc. He agreed at that time and my loan got disbursed with 7 days but when I saw the credited loan amount I was shocked. HDFC deducted some 1500/- as premium and within 2 days I got the policy doc as well.
I ringed to HDFC Loan dept and asked how you deducted 1500. He said it’s mandatory to have insurance against your loan. I then asked the loan dept guy to connect to his manager. I spoke to his manager and said return my 1500 within a week or get ready to face consumer court. Obviously he was trying to convince me but I was unmoved. Finally he agreed to return the premium amount and within 1 week I got the Cheque of Rs1500
Great
.. This is nice experience .. Its very simple, PL is a unsecured loan , how can they ask for security for that 
Happened with me recently. I have taken Home loan from DHFL (one month back) and they told me that its mendatory to have Home loan insurance to get Home loan and they offered me Icici pru Home assure policy which cost me around 37K.
Two days back i got the policy document. Can i cancel this policy now? Can DHFL have any objection or problem on this. I am not sure if they are having any rule in their loan agrement to have this policy.
Pl suggest me should i go ahead an cancel this policy ( i am already having sufficient term insurance which can take care of my Home loan).
Cancel it , you are into the 15 days lookup period , you can cancel it and get back all your money . They should not create much issue now ! , make sure you have proper records that you applied for cancellation within 15 days of recieving the policy , just to make sure you are stronger by the records and proofs !
Thanks Manish for your reply. I am working on it..
I am currently taking a homeloan from SBI. I have some TERM insurance from SBI Life. They are asking me sign the assignment form which will assign some portion of the Insurance to SBI. Should I do this? Appreciate your inputs.
Yes ,that makes sense .. they might want a security that if something happens ,they should get something out of your term plan ! , do it
Thanks Manish … I have done that …. Now, I gotta go and buy an online term insurance plan before my next birthday .. will do that as soon as my this week or next ….
Great !
Surprised to hear such cases. 5 years back I had done home loan transfer to HDFC. I was approached for buying ULIP policy but that was optional. I did not face any issue in getting the home loan cleared.
But good that I am aware of this.
Regards
Atul
Life was better those days and you met good people !
Thanks Manish.Good article.I have insited for MF from bank while taking home loan.You can withdraw after 6 months and no commissions /exit loads are involved like ULIPs
Thats great ! , MF is fine I would say !
Hi All,
My friend is also facing this issue when taken LAP with axis bank. He told me that he got a loan of 14lakhs, while the sanctioned amount is 24K more than this. That 24K gone towards 1 TATA AIG and 1 MAX Newyork Insurance. What to do now as the amount got disbursed today? Can the bank still cancel the policies or Do he have to wait to execute option 4?
Thanks In Advance
Better look at option 4 . Once the policy comes to your hand , better cancel is within 15 days !
Hello Manish,
Some banks charge insurance for Personal loan also, Is it a right practice from bank’s to charge from the loan amount itself? Is it compulsory?
Thanks,
Penchal
No, its not
Hi Manish and all,
Please help me out of my siutation here,
I have taken loan for Plot Loan ( vacant Land ) from SBI and as usual i was also victim of this fraud people. I took loan Last year Jan 2012. That time when manager told at the end that i have to take this loan compulsory , I argued saying I have TERM insurance close to 1 crore , then why do i need it and i am enough insured. But we had a personal urgency to process quick , so Manager promised me after my hard argument that she will talk to head branch and try to see if i get exempted from this SBI RIN RAAKSH insurance. But on final day when i meet her of day registration she said she could not help me much and in that location of where I am buying SBI is the *only* branch and builder was only associated with it and in pain i went ahead.
My loan amount was = 20 Lakhs and SBI sanctioned = 34,000 as insurance approved amount , so total my loan amoutn = 20,34,000.
For insurance amount = 34,000 , it will be pain in 5 installments to SBI insurance on behlaf of me by SBI bank. So First installmnet = 6600 was paid by SBI bank ( since in stupidity i signed) and original insurance doucment was sent to SBI bank and receipt was sent to me by SBI insurance.
If Manish could have posted this suggestions 1 year back, I could have been saved. After looking at this Manish and other’s suggestions here, I called Insurnace people and asked I wanted to cancel the policy.
I was surpsrised by SBI Insurnace team answer that : I can not return myself the policy ( i don’t have original too , it will be kept at SBI bank as security) and I have not taken policy from them directly. Policy was taken by Bank after my consent. Since I have lost the fight with Bank that 15 days free lock period option. Now in another 15 days my second isntallment amount will be deducted and policy will be renewed by bank. Now what is the option do you suggest me to get out of this fraud. ( Surrender is what i heard ). But that too Bank has to do for me and I have to fight with bank for this surrender. Any loss in surrender do I have to bear or SBI bank will bear If I tell Manager that I will be taking this matter to RBI and banking ambuds ?
Regards
Kumar
I think the bank as “ASSIGNED” it to them selves . ASSIGNMENT is a term in Insurance, where you declare that any benefit out of it should go to this person , its different than nomination , I think the control is with SBI bank now . While I would still say that you contact RBI and also use RTI to find out what needs to be done in this case .
Another option is to also let it go as the amount is quite small compared to what we generally hear . I am saying this only because you can concentrate on more important things and now let this one be like a lesson to you .
Take your pick !
Manish
This happened to me. I told the manager i will instead invest in mutual funds owned by your bank which he readily agreed and sanctioned the loan. Once the loan was sanctioned he never got back to me to invest in mutual funds
Great to hear that .. it proves that these are just the tricks used by these people and they are not so serious about it !
Thanks Manish for such a nice article. I am a live example of this topic. I am in process of switching my home loan from Bank of India to SBI. After almost 4 to 5 months of delay, I was being asked by SBI to avail Run-Raksha Insurance or to assign one of my existing insurance policies. After escalating this point with SBI customer service officials and IRDA, finally my home loan was processed further without having to avail or assign any insurance. But, unfortunately, the loan transfer is still not over with lethargic approach and pathetic service by SBI. Just thought to highlight the fact that if a proper channel is used, we can get rid of headache of insurance policies.
Good day Manish,
Wishing you & your readers a happy & prosperous New Year 2013. Its been a while I have logged onto your website , hence the lateness.
.
This particular article concerns me in a big way & if you could advise me I would be grateful. I am in the process of applying for an ICICI home loan for nearly 1cr. ICICI has offered me their Liability cover product – “Home Protect” which according to them is exclusive for their home loan applicants. Details of the proposal are : Coverage: The product offers a complete Death coverage -
1) Accidental Death,
2) Natural Death,
3) Murder &
4) Suicide.
Coverage as follows:
Loan Amount : 1 Cr
Tenor: 15 yrs
Premium : Rs. /- 2,22,800 (Covering Applicant) which would be added to the sanctioned loan amount.
I have clarified to them that I am under no compulsion to buy this and they have agreed to the same ( I guess a little bit of financial literacy goes a long way). I already have a term plan for 50lac from LIC for which I pay an annual premium of 16000/- odd rupees. The premium amount is high as I am involved in a high risk activity professionally ( as per their norms). Now looking at the term plan offered by ICICI it seems my annual premium works out to be in the region of 14000/- for 15 years for 1cr. Here lies my dilemma, whether I should voluntarily accept this term plan offer or go for an additional ‘outside’ term plan where my premium would be high for the same value which covers the loan amount.
The ICICI Mumbai home loan department have been helpful & importantly understanding and till now have given me no reason to feel pressurized.
Do let me know your thoughts on this. I would like to clarify that I work on oil rigs & platforms, hence the high risk profession.
With regards,
Aditya
It does not make any sense to pay one time single premium , Note that you cant just divide that number by tenure and say tht per year cost is Rs X , because the value of money also needs to be considered (Rs 1 lacs paid for 10 yrs in start and Rs 10k per year for 10 yrs are not same) .
So better take a term plan from outside and have a CHOICE to stop it in between if required . Just see how much you can get on yearly basis as interest if you put that 2 lacs in a FD
. Cant you pay the term plan premium by interest on it itself !
Manish
Thanks Manish
Hello Manish,
SBI has recently launched e-term plan your review about that. I am planning to go for it, your thought please.
I think its iShield .. I am not sure what will the review contain . Its more of a new term plan in market .. thats all
Hi,
Firstly Huge thanks for sharing so much of valuable Information.
We(myslef and dad aged 50) had a 28L home loan form IDBI, as usual they forced me to buy insurance which costed 80K for 5 years.
we have cleared the loan in 4 years, i came to know we can get the premium paid back for the remaining term form the Bank of baroda manager, however when i called up IDBI they say it cannot be returned, and only if something happens to th borrower, they will give the sum assured 28L to the borrower is this true?
If not i would like to know the legal options i can exercise to teach them a lesson, so that people are not cheated again.
Thanks
I think its too late to correct this mistake .