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

POSTED BY Jagoinvestor ON December 24, 2012 COMMENTS (217)

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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217 replies on this article “4 things to do, when you are forced to buy a Policy with Home Loan !”

  1. Sanjay says:

    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

    1. Yes, I think in case of PSU , its like that !

  2. Ankit Sood says:

    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.

    1. Get your loan done first and then later surrender the insurance policy within 15 days .

  3. Seshu says:

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

    1. As per RBI this is illegal and they can be fined for that. Show them the circular which I have put in the article. As far as I know, only and only home insurance (house holder policy needs to be taken, but not a home loan insurance)

      Manish

      1. amrut says:

        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 amrut2123@gmail.com please?

  4. a says:

    good job !!!!

  5. Pradeep says:

    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

    1. Yes, tell them that you are not buying the insurance as its against RBI notification. If they do this, you will complain to RBI and make them loose their jobs !

      Manish

  6. vikas says:

    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.

    1. Investigate on this …. this is no compulsion like that from RBi .

  7. sidramappa says:

    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.

    1. Dont take the policy and ask them to cancel the loan and tell them that they are going to loose their jobs as you will drag them to banking ombudsman and RBI and even consumer court. See how they change the colors !

  8. MuraliKrishnaK says:

    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?

    1. No, you should not take it .. Tell them that you will complain with insurance ombudsman

      1. Murali says:

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