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HDFC Insurance Premium Funding( IPF) Loan Understand before subscribing

Amit( name changed) approached HDFC for a home loan. The lender sanctioned the home loan across-sold a home insurance policy( HDFC Home Suraksha Plus). The home loan quantum is Rs 29 lacs, and the single insurance decoration is
. The decoration for the insurance plan is relatively high. Amit can’t pay for such a high decoration.

No problem. HDFC has a result. Another loan is equal to the insurance decoration account. You can call this Insurance Premium Funding Loan( IPF Loan). The insurance policy is from HDFC Ergo(a family concern of HDFC). therefore, no cash exodus from Amit’s fund. And Amit can repay the loan in EMIs spreading over 15 times( same as his home loan).
After 5 times, Amit prepays the home loan and approaches the bank for the release of his documents. The bank declines to release the papers since the IPF loan is still not repaid. Is the lender justified in not releasing the papers? What do you suppose?
Note As per RBI regulations, the lenders aren’t permitted to make purchases of insurance as a precondition to loan permission, but we know how effects work, especially against those borrowers who aren’t fully apprehensive of the regulations. Since I can’t be sure what occurred between HDFC and Amit, I must give the benefit of mistrustfulness to the lender. Amit must have set up merit in the product.

Is HDFC Justified in Not Releasing the Documents?

The lender’s action is fairly correct. There are two loans. Home loan and the Insurance Premium Funding( IPF) Loan. And the IPF loan letter easily states that the loan is secured by a mortgage on the property. thus, unless the IPF loan is completely repaid, the lender won’t and shouldn’t release the documents. fully justified. still, is HDFC right?

Let’s first dig a little deeper.

Home Loan quantum

29 lacs Home loan term 15 times
HDFC Home Suraksha Plus has 2 factors

  • Home Insurance
  • Personal Accident/ Critical Illness/ Loss of job insurance

1 Home Insurance

HDFC Ergo Home Suraksha Plus covers the borrower’s house against

  • Fire and confederated threats, Earthquake, and terrorism( both structure and contents) AND
  • Burglary, housebreaking, and Theft( contents)

Fair enough. However, the borrower receives a fiscal blow, and the repairs can bring a lot of plutocrat If the house or structure is damaged. A home insurance plan will help then. also, if the damage is beyond form, the borrower may have lower incitement in paying back the loan. Such a plan helps guard the interest of the lender( as all the payouts are routed through the lender).

2 Personal Accident/ Critical Illness and Loss of Job

repayment ability. However, the bank can reclaim your house, If you don’t repay the loan. Not a happy situation to be in. This can also be if you lose your job( not including voluntary severance or withdrawal)
How do you manage this threat? By buying particular accidents, critical illnesses, and loss of job insurance.

Note In particular Accident plans and critical illness insurance plans, the insured events aren’t as objective as a term life insurance plan. Indeed health insurance plans are more objective. However, suggest you go through these posts on particular Accident Insurance and Critical Illness Insurance plans, If you want to understand the complications of similar plans.

Where Is HDFC Wrong?

As a borrower, which event poses the biggest threat of remitment? The unambiguous answer would be the demise of the borrower.
And as crazy as it may sound, the HDFC Ergo Suraksha Plus doesn’t cover against demise. It covers demise only if it happens in an accident( accidental death). still, the insurer won’t pay anything, If the demise happens due to a natural cause. In the event of the borrower’s demise, if the loan isn’t repaid, the bank will come and reclaim the house. The family of the borrower will be left high and dry. But why would the lender not include life insurance?

Because HDFC Ergo is a general insurer. Can’t vend plain vanilla life insurance. Hence, don’t condemn HDFC Ergo for this.
HDFC( lender) could have tied up with HDFC Life and cross-sold a term life insurance policy. Possible reasons why this didn’t be( and these are conjectures)

  • The lender allowed that accidental disability and critical illness pose a lesser threat of remitment than demise. The banks don’t suppose. They vend.
  • HDFC( lender) is awarded better for cross-selling the policy from HDFC Ergo.
  • HDFC could have ended both plans( from both HDFC Ergo and HDFC Life) but the advanced cost and multiple plans could have repelled the borrower. The bank loses both the insurance commission and the loan customer.

By the way, HDFC Ergo Suraksha Plus isn’t one of a kind. We wrote about ICICI Lombard Home Safe Plus numerous times agone.
Another Question Mark on the Intent
The insurance content is only for 5 times. Why? The home loan is for 15 times, right?
Does HDFC suppose effects can go south for the borrower only in the first five times? What if the commodity( ensured event) happens to the borrower after 5 times?

By the way, HDFC presumably has a perfect defense for this. utmost borrowers tend to compensate loans( as Amit did). therefore, by keeping the term short, the lender kept the decoration low for the borrower. A 15-time insurance cover would have brought thrice as important.

Editor’s Note Lenders should presumably reevaluate how similar loan and insurance products are structured. The HDFC Ergo insurance product is for 5 times only. still, the HDFC IPF loan account has a 15- time term( same as the home loan term). First, this may beget the borrowers( or their families) to inaptly assume that they’re covered by this insurance product 15 times when this isn’t really the case. The alternate issue is that during the preclosure of the home loan, they feel that they’re being wearied to compensate the IPF loan for an insurance product that has formerly expired( or is no longer needed).

What Should You Do?

HDFC Ergo Home Suraksha Plus isn’t a complete product. In fact, no similar plan is complete without a plain vanilla life cover. still, the structure, content and backing are NOT fully unmannered moreover. It doesn’t give content against a many pitfalls. You can not trust the banks lenders and the experience suggests the deals brigades can be relatively ruthless, unconscionable, and asleep. Do n’t anticipate HDFC to be any different.

Caveat Emptor. Buyer guard . You must do your schoolwork.

•Re-assess pitfalls to your fiscal lives. similar pitfalls can be demise, poor health, hospitalization, disabilityetc.

  • Purchase suitable insurance products consequently. And you can get insurance directly by bypassing the bank. Please note precious and deficient content through products similar to HDFC Ergo Home Suraksha Plus is better than no content at all.
  • Ask the right questions. Read the terms and conditions of any product( loan/ insurance/ investments) before subscribing the dotted line. Saves a lot of heartburn latterly.
  • Know your rights. speeding of products isn’t permitted. effects like “ If you don’t buy an insurance plan, we wo n’t permission loan ” is illegal. Stand your ground and ask the lender to give similar statements in jotting.

still, if you’re thwarted by the difference in terms of insurance content( 5 times) and IPF loan( 15 times) OR why the lender won’t return documents indeed after the prepayment of the home loan, take a deep breath. There’s nothing wrong. veritably simple. You took a loan and paid the insurance decoration. Once this happens, the loan term has no relation to the insurance content term. The IPF loan term could have been 1 time, 3 times, 5 times, 10 times, or 25 times. Makes no difference. Since the loan is secured by a mortgage, you won’t get the property papers until you close the IPF loan too.

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