Jagoinvestor

December 24, 2012

4 things to do, when you are forced to buy a Policy with Home Loan !

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.

Policy Forced Selling with Home Loan

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?

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Rajesh
Rajesh
3 months ago

One of the bank from which I took home loan forced me to buy shares of the bank, but even after nearly 2 years they are not giving me my shares and now I am nearing completion of my loan, 180 months according the sanction letter. Now they are say that you have to pay extra 6 months. When I asked them reason they said there was a increase in rate of interest so you have to pay more installments . Funny thing is that around 10 years ago they increased the interest rate and it continued until 2022 when I asked to revised my interest rate, which was lower than I was pay. So they agreed to lower my monthly EMI. What I should do?

Sanjay
Sanjay
7 years ago

Hello,

BOB is telling me that the insurance with following cover is mandatory to get a home loan. can you please advise me.

1) Earthquake-Building
2) Fire-Building
3) Riot strike malicious damage-Building

Ankit Sood
Ankit Sood
7 years ago

Hi Sir,

I got my Home loan approval from PNB Housing Finance, but just after that the executive said for the sanction process insurance is mandatory.

I got below on my sanction letter finally:
Loan Amount Approval: 25,10,000
Insurance Amount: 1,10,000

I was left with NO option than to sign the documents for my sanction completion.
So, i did it (As they said its mandatory).

I have my loan disbursement at the time of Registry next week.
Can i do something on this now…??

Please Help.

Amit Singh
Amit Singh
Reply to  Jagoinvestor
3 years ago

Sir, My dad took a loan of 6.5 lacs in 2009-2010 from PNB housing finance. But it is in 2020 we got to know that our loan amount is 7 lacs as their is a life insurance of 50k which we never knew. My dad is not well educated and at that time even I was a kid, so we could not get it checked. They didn’ even gave us sanction letter, insurance bond letter or any document. Is there anything be done now? Can court help?

Amit singh
Amit singh
Reply to  Jagoinvestor
3 years ago

Sir, today they gave me the copy of insurance. I amazed to see that they are the policyholder for which we have to pay with interest. Please suggest how can I prove my point. Do i need to go consumer court? Can I hope for justice?

Seshu
Seshu
7 years ago

Sir I am taking axis bank loan for 20lacks but bank people telling in last movement home insurance s must what can I do

amrut
amrut
Reply to  Jagoinvestor
7 years ago

I tried opening RBI circular which you shared in word and notepad, but seems its not opening correctly. Can you please send this circular of RBI on [email protected] please?

a
a
7 years ago

good job !!!!

Pradeep
Pradeep
7 years ago

Sir,
I applied for a home construction loan for Rs 28 Lakhs in SBI. They seem to have sanctioned Rs.28,62,000 which includes Rs.62,000 towards Life Insurance. I have only been communicated on phone and no SMS or emails regarding the approval hence no proof in my hands that the loan is approved. However I have no intent to buy the insurance.
I think they will provide me a Loan Sanction Letter for Rs.28,62,000 which I will be asked to sign to proceed further.
My question is, should I push them to give a new sanction letter for only Rs.28,00,000?
Or can I just provide them a letter stating I do not need Life Insurance and sign the original sanction letter?
Please provide your valuable advice.
Thanks,
Pradeep

vikas
vikas
7 years ago

Hi

My name is vikas.SBP has made 9k deduction from my loan account with respect to home loan protection plan by sbi with my consent.When i talked to officials then they said these are the guidelines by rbi.Please give clearification on this asap.

sidramappa
sidramappa
7 years ago

I taken loan 21 lakhs in DHFL but they are forcing me to take home shield policy of about 90 thousand it’s compulsory otherwise we have to drop the loan they are telling like that please suggest me.

MuraliKrishnaK
MuraliKrishnaK
8 years ago

Hi Manish,

I took home loan from SBM and they asked me to take life insurance for an amount of 25000 and told that it is mandatory. So I took it. Now as my interest is increasing, I have transferred my home loan to SBI from SBM.
Loan amount is 9.7 Lakhs for 10 year. Now SBI is asking to take property insurance against market value of 30L for my flat. They are saying premium is around 8500 for 10 years. I told that I have SBI life insurance already against my home loan, should I take property insurance again? They are forcing me to take property insurance even if i have life insurance against my home loan. Please suggest me what should I do?

Murali
Murali
Reply to  Jagoinvestor
7 years ago

Thanks for reply Manish. I will tell same. Thanks.

Kamlesh
Kamlesh
8 years ago

R/Sir, I am Kamlesh Kumar Chaurasiya taken Home Loan of Rs. 23,00,000/- from Canara Bank with insurance cover for 20 years. Now I am intending to repay all outstanding HL Amount to Canara Bank. So kindly tell me after closing my outstanding HL amount insurance cover will be remained or otherwise.

vikash Kumar
8 years ago

i took personal loan from sbi but bank manager forced me to take a cover policy otherwise u will not get the loan..now what should i do as i have taken the policy

Phani
Phani
8 years ago

Did any one had bad experience in Punjab National Bank ? Are they also selling insurance policies along with home loan?

Which is better to go loan for HDFC , LIC or Punjab National Bank? I have salary account with HDFC. Please suggest in terms of Processing fee, hidden charges, their home insurance etc.

Thanks in advance

rajesh
rajesh
8 years ago

Yes this bundling happend to me from SBT..They sold me HL of 29 lakhs with SBI Rin surakhs policy of 95k.Now I preclosed the HL in Feb 2015 and SBT returned me the HL documents and credited 21k of surrender insurance value.But suddenly in Feb 2016 after 1 year i received a notice from SBT Br Manager demanding premium for the closed HL a/c.I replied strongly against the unfair practice and the status of closed HL a/c stmt.But he threatened me to take up the matter with my employer and revenue recovery against me.I filed complaint against banking ombudsman and tomorrow is the hearing at trivandrum 13.04.2016…Now bank send me an advocate notice for suit for recovery and I filed one complaint in District consumer dispute forum also.SBT is making unfair banking practices to make more insurance commission.Banks are not foreseeing the customer right to foreclosure of the account.They are cheating us.Insurance is the subject matter of solicitation..I am worried about revenue recovery threat for Rs.64k premium amount…Can I continue the legal battle…Pls put your comments…..rajesh/[email protected]/Trivandrum

ManjunathaKS
ManjunathaKS
8 years ago

First thing, the banks have no right to bundle Insurance with the home loan and arm-twist the customer in the last stages of loan processing. It is absolutely the customers’ right NOT to buy home loan. Towards this all that is discussed here is right. But It is always wiser to go in for that additional insurance cover, just to provide for any unfortunate fatalities, so that the loan repayment wont be a burden on the family and also the existing insurance cover is not disturbed.

But the banks have now started bundling not only life insurance but all kind of insurance, for instance they force you to buy even health insurance. That is real rubbish, if you already have a good health policy to cover yourself. I recently took a home loan of 21 L from DHFL. They generously gave me a loan of 21.5 L but told me only 20L would be available towards house purchase, and the rest 1.5L was for insurance. On inquiring I learned that they had bundled four policies into that 1.5L, a house insurance, Life policy, an accident policy, and a health insurance. I fought tooth and nail with them to reduce the insurance amount from 1.5 to 0.5 and add One lakh towards home loan. Thus I was able to slash out the Life policy by half, completely remove the Health Insurance, and retain accident, home and half of Life policy. I could have got the insurance component removed completely, but I thought it wiser to have this much. But still, blood boils when I think of the way they arm-twist a helpless customer, who would have already paid hefty advances to the seller to finalize the deal.

Vinayak
Vinayak
8 years ago

Thanks Manish

Vinayak
Vinayak
8 years ago

Hi Manish,

My question is what are the charges we have to bear to take the loan from LIC housing Finance compay?
My agent is saying we have to pay 1% processing fess and Legal charges, stamp charges and etc. Hope you will guide me .
Thanks in advance

birender
birender
8 years ago

HI,
I have applyied a home loan with DHFL and loan was sanctioned with loan amount 1460877 with insurance policy, my question is that, can i get this loan amount without insurance policy. If they force me to take this policy otherwise i will cancel my loan amount then what action i have to take at this point of time. Please assist.

GeethaRajC
GeethaRajC
8 years ago

I approached PNB Housing Finance Coimbatore for a home loan. Loan amount Rs. 55 lakhs for 20 years at 9.75% interest rate. However only after registration of property do I know that they have clubbed an ICICI prudential insurance for Rs. 2.50 lakhs along with my loan amount. Now my total loan amount is Rs. 57.5 lakhs! I called the relationship manager and told him to cancel the policy and he threatens to cancel the loan. I have no go as all this is very last moment. I have read through all your posts and yet I do not really have a solution. In 3 words – PNBHFL cheated me.

LavHotkar
LavHotkar
Reply to  Jagoinvestor
8 years ago

Hi Manish,

I am Lav Hotkar, I took Home Loan from DHFL and they made it mandatory to take DHFL Pramerica Life Insurance Policy alonfg with Home Loan. So as per their condition i had took both Home Loan along with their Insurance policy and as per your comment on GeethaRajC post i had cancelled this policy within 15 days and now received a phone call from DHFL officials stating that i should repay entire loan amount within 2 month. otherwise they will transfer my file for recovery department.

So please help me out and give some suggestion for my case.

LavHotkar
LavHotkar
Reply to  Jagoinvestor
8 years ago

Thank you manish…..

Prateek
Prateek
8 years ago

Thank you Manish for this really helpful article. I was searching online for something like this but related to personal loans. Does it apply for personal loans as well? Because I was being forced by a Bajaj executive to buy Health Insurance & Life Insurance along with the PL. He said it was mandatory otherwise I will not get the loan. Could you please help me with how to go about this? I have already rejected the offer as I’m not willing to pay for something that I already have myself covered with.

Prateek
Prateek
Reply to  Jagoinvestor
8 years ago

Thank you for your response. Please guide me to whom should I complain about this as these guys don’t seem to be afraid of any consequences. I told the Bajaj executive that you can’t force me to buy the policies. He just didn’t listen and disconnected the phone on me. Please direct me towards the right approach.

Seena
Seena
8 years ago

HI, I had taken a balance transfer of my home loan from IDBI to HDFC. With IDBI I had taken a home insurance policy for the full sum assured and a term of 10 years, out of which 5 years are over, so I still have 5 years more to go on until the term expires. I was told by IDBI insurance that they will reassign the policy to HDFC as an assignee and I needed to submit the reassignment form with HDFC’s stamp in place of assignee, but HDFC home loans refused to stamp the form saying that I need to take a policy from HDFC only. Is that valid, can they do that? What can i do to get this policy assigned to HDFC since it is fully paid.