Property Insurance premium deducted from Home Loan by Canara Bank

POSTED BY jainarvind ON April 14, 2014 1:53 pm COMMENTS (2)

Dear Sir

Recently I opted for a Home Loan of Rs 28 Lakhs from Canara Bank to Buy a Flat for 20 yrs.  Without any information the Bank Deducted the premium from the account. on Asking about the same, I was told by the officials that it was for Property Insurance and is mandatory. Since I was not Informed, I did not maintained the Amount in the Account and when I deposited the first EMI, rather deducting the same the Insurance Premium was deducted along with the penilty……

My very first question is that…. Is the property Insurance is Mandatory and the bank deduct the charges without prior intimation and apply penalties in case of delays?

Now since Rs 12,500 deducted on the account of property insurance the bank said that the policy document shall remain with them and shall not be provided to me.

My Second question is ……. Can the bank retain the policy with them?

Further, the bank officials are now pressurizing to get the Loan Insurance done and said it is must else they will be charging penalties on the delay…….

My third question is……. that, Can the bank pressurize an individual to buy the Loan Insurance and penalize on delay?  Can an individual buy the policy having regular yearly premium rather buying single premium product? Is is mandatory to buy the Loan Insurance Product from the Canara Bank only or an individual can buy from other company like LIC or Aviva or HDFC etc…?

I would like to seek clarification at the earliest from your side on the above mentioned issues…..

Thanks

Dr. Arvind K Jain

2 replies on this article “Property Insurance premium deducted from Home Loan by Canara Bank”

  1. ashalanshu says:

    Dear Arvind, let me try to answer your queries.

    My very first question is that…. Is the property Insurance is Mandatory and the bank deduct the charges without prior intimation and apply penalties in case of delays?
    No Property insurance is essential but not mandatory. Simply ask the bank official to provide RBI guidelines on the same.

    My Second question is ……. Can the bank retain the policy with them?
    No. It’s your policy and bank can not retain it with itself. In case of claim, who ‘ll file, you or bank? The property belongs to you and you are the owner for the property as well as you are the proposer in this property insurance, hence the policy should be with you.

    My third question is……. that, Can the bank pressurize an individual to buy the Loan Insurance and penalize on delay? Can an individual buy the policy having regular yearly premium rather buying single premium product? Is is mandatory to buy the Loan Insurance Product from the Canara Bank only or an individual can buy from other company like LIC or Aviva or HDFC etc…?
    Again ask the bank to provide RBI guidelines, Bank can not force any particular loan term insurance policy on you. You are free to purchase it from the insurer of your choice.

    Thanks

    Ashal

  2. Raja says:

    1. Property insurance is “mostly” mandatory by all banks. In any case, it’s a good idea to insure your property, so go ahead. As far as the premium is concerned, the bank should have informed you upfront and given you the choice of either paying the premium by DD or deduction from loan amount. Also in such cases, the property insurance document will be favoring the bank since the property is mortgaged to them. Your name will also be there in the insurance document.
    2. The original policy document will remain with bank, but they must provide you with a copy of the policy document since you have paid for it and it is your right to check whether property insurance was really purchased for your property. After the loan is repaid, you have to get the property insurance endorsed in your name. The property insurance will be valid for the 20 yrs period for which it was taken even if the loan gets repaid earlier.
    3. Bank cannot pressurize you to buy loan insurance. Tell them to give you the rules as per RBI in writing which mandates the bank to demand loan insurance. You can very well buy a term insurance to cover the loan amount and pay yearly premium for it. No need to go for one time premium since that will be for 20 yrs and your loan might get paid in less than 20 yrs. Also the one time premium will be costly. However it is not a bad thing to have loan insutance in case you do not have a backup plan to cover the loan amount in case of an untimely event. Even if you do decide to buy insurance, you can do so from any insurer. Canara bank cannot force you to buy their own policies.

    This is my opinion based on my experience with Axis bank. I had taken property insurance but opted not to take loan insurance. I was sent a copy of the property insurance by post for my reference.

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