Q. My wife and I work in the government sector, and our salaries are ₹35,000 and ₹54,000 (net), respectively. We are both in our forties and have jointly taken a home construction loan of ₹60 lakh for 25 years. The question is about the choice of insurance cover my wife or I should opt for, to protect / waive our home loan, should any uncertain event occur.
RAVINDRA KUMAR
A. Mortgage insurance is usually bundled with home loans. The sum assured on these loans match the loan amount and the policy period matches the tenure of the loan. The policy is assigned to your housing loan company so the claim payment is made to them, enabling them to adjust it against the outstanding portion of the loan, interest and charges and pay the balance to your nominee. The function of the cover is to make good the outstanding loan and interest should the borrower pass away without clearing the loan.
This leaves the property loan-free for the surviving owners/ family members who are contending with the loss of a loved one and the bread-earner at that.
For some reason you have not opted for it or your housing loan company has not made it mandatory. A good first step is to ask them for their options/offers, if any, so that the insurance will work seamlessly with your home loan.
That having been said, term insurance policies backing home loans have certain rigidities as they have been defined for the requirements of your lender.
For example, the cover will be co-terminous with your loan, that is, it will end at the same time as your loan is schedule to be paid off, while you may well want to continue with the policy as a protection for your family beyond that date. Please scout around for term insurance independently, with matching sum assured and policy periods.
If you spot something that you like, tweak the sum assured and tenure to your liking, ensuring that the former is higher than your housing loan amount and the latter is longer than the loan tenure. You are unlikely to find better rates as the housing loan company would have negotiated a bulk rate, but no harm doing this research. You may find add-on covers you like. You can ask your housing loan company to get these add-on covers for you, but they may or may not be inclined!
Q. I have an endowment insurance policy which needs the premium to be paid for 10 years and I also have a pure term insurance policy for 25 years with sum assured of ₹1 crore. Is it advisable to have both insurance covers? If not, and if I surrender the endowment policy, what are the pros and cons?
JOEL KIRUBHAKARAN
A. Since you have purchased both policies and have been paying the premium, only affordability or creating more efficient coverage can be reasons to surrender the endowment policy.
If you want to do that, you can check if your policy has become eligible to become paid-up or for surrender. The website of your insurance company and your agent can also help you with the information and formalities. If you make the policy paid-up, you don’t have to pay premium any more and the policy coverage will continue with a smaller sum assured.
If you want to recover some of the money already invested right now, you can surrender the policy, depending on the terms and conditions. You will get back a portion of the premium you have paid and the coverage will cease. Having done that, you can stay with your term insurance if you think it is sufficient, or apply the premium you avoid paying on the endowment or the surrender value you received, towards a new term policy. You will have more coverage than with the earlier combination because of the premium rate differences between the two types of policies.
Q. I am 28 years old and have an endowment plan of 20 years’ tenure that started in 2018. The premium I pay now is ₹3,400 per month. After going through many finance-related articles including The Hindu’s MoneyWise section, I now think that an endowment plan is not the best investment option. What would be a better plan for me if I surrender my endowment? Also, will there be any demerits in surrendering it before maturity?
AJIN KRISHNAN K
A. Surrendering comes at a price. You will get a refund only of part of the premium you have paid until now and coverage will come to an end. You can check if the policy is eligible to become paid-up. In this case you can stop paying the premium and the coverage will continue on a reduced basis. You can then rebuild your life insurance portfolio to the levels you want at better prices.
Almost all the information you need to compare the costs of surrendering or making it paid-up will be available on the face of the policy or on the website of your insurer. Your agent or the branch of your insurance company will support you with information and procedures as well. They will also tell you the demerits of such discontinuance and strongly advise you against it. Get their side of the advice, but also undertake some research yourself and come to the decision that is right for you.
(The writer is a business journalist specialising in insurance & corporate history)
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