More home loan borrowers opting for life cover

Mumbai: More home loan borrowers are opting for creditor life insurance. Major mortgage lenders say that 25 per cent to 50 per cent of the borrowers are now insured.

Under a loan cover term assurance plan, the insurer pays the outstanding loan amount in case of death or disability of the borrower.

SBI clients

Five years ago, SBI Life Insurance introduced the home loan (creditor) life insurance cover and has been selling it on State Bank of India’s home loans. Today, half of SBI’s home loan borrowers are protected by insurance.

"Around 50 per cent of SBI’s home loan portfolio is covered by insurance. As old loan accounts are expiring, the coverage of insurance is increasing as awareness has increased among new borrowers," said a senior SBI official.

SBI’s current outstanding home loan portfolio stands at Rs 38,000 crore.

Besides, its parent State Bank of India, SBI Life has tie-ups with Dewan Housing Finance and other banks such as Union Bank of India and Federal Bank.

"SBI Life Insurance has covered a total of 6.5 lakh home loan borrowers. The awareness of such insurance has increased significantly over the last two years," said U.S. Roy, MD and CEO, SBI Life.

ICICI Prudential Life Insurance introduced the product two-and-half years ago and has a tie-up with home loan market leader ICICI Bank. The company is seeing a strong year-on-year growth of 250 per cent in terms of premium from this product.

“There has been significant increase in real estate prices in the past five to six years which has prompted people to buy insurance,” said Pranav Mishra, Senior Vice-President, ICICI Prudential Life Insurance.

Changing trend

“Earlier, those who were 40 plus were buying property and since they had the capital, they were taking loans for only 50-60 per cent of the total amount. Now, more people in their late 20s and 30s are buying property and taking loans for 80-90 per cent of the amount, with repayment periods extending to 20 years,” he adds.

Under ICICI Prudential’s plan, the single premium is around Rs 27,000 on a Rs 20-lakh loan.

Deepak Satwalekar, MD and CEO, HDFC Standard Life, said: “We are working with HDFC to look at customers who are with us at least for a couple of years.”

HDFC’s outstanding home loan portfolio is at Rs 56,512 crore as on March 31, 2007 and around 20 per cent of it is covered by insurance.

Until 2003-04, 100 per cent of LIC Housing Finance’s portfolio was insured, as taking a life insurance policy (equivalent to the amount of the loan) had been made mandatory for borrowers.

"Since it is no longer mandatory, the proportion has slightly come down. But most borrowers still opt for insurance," said an LIC Housing Finance official.

Source: Sify Insurance News