Should you take Property Insurance through your lender
Whenever you apply for a home loan, towards the final stages of loan sanction, the lender always insists on you taking an insurance. This is usually projected as covering your risks in case of any exigencies. Moreover, the lender does not even give you the option of shopping around for the best insurance policy, or one which would meet your needs. You are usually saddled with a policy which your lender has an association or tie-up with.
There are usually two types of insurance, which is bundled along with your home loan. One is the term insurance, where the insurance company would pay off the outstanding loan amount to the lender, should the borrower die during the term of the loan. Second is a property insurance, where the insurance company would pay upto the cover taken for the loan amount in case there is any calamity which affects the property.
Though these are good insurance policies to have, it is essential that you as a user are aware of the different policy terms and caveats, so that you can make an informed choice. But the issue for most customers is the way in which lenders force the borrowers to take the insurance mandated by them, which is more expensive than the policies from the open market.
It is best to do your research, as to the best policies available in the market and how much it would cost you. If the insurance premium is drastically different from the one quoted by the bank, you could always buy it from outside and link it to your loan. If your lender insists on taking the insurance from them, you could either approach the banking ombudsman or take the loan from a different lender altogether. With the increasing competition in the home loan market, lenders are going out of their way to give the customer a best deal. If you don't want to go through the hassle of negotiations all over again with a new lender, you could just take the insurance from your lender and return it within the free look period and you would get back the premium paid, albeit with a few deductions.
Nevertheless, it is best to ensure that you are adequately insured, so that the massive liability in form of a loan does not affect your loved ones in case some calamity were to befall you.