Bundling insurance products with housing loans is among the most common tactics lenders use today. This problem is so widespread that recently, the National Housing Bank (NHB) had to reprimand lenders for mis-selling policies bundled with home loans. The regulator has also instructed lenders to avoid bundling insurance plans without informing borrowers about the policy details.
Another classic tactic is luring borrowers with unrealistic benefits or returns, which are often not guaranteed. Often, when the lure of benefits does not work, lenders resort to pressuring borrowers into buying a policy. “A common strategy is to create a false sense of urgency or project loan approval as a limited-time offer to rush borrowers. We have also seen some lenders smartly omit during their pitch that borrowers have the freedom to choose policies from different providers,” says Shilpa Arora , co-founder and Chief Operating Officer (COO), Insurance Samadhan.
How To Identify Red Flags
The best way to identify these red flags is to review the loan and policy documentation carefully before signing. Learning about home loan essentials and home insurance products can help you make an informed choice without being rushed into one. “I also recommend questioning the loan agent in case you have any doubts or are unclear about what you are buying,” says Arora.
Also, the policy sold to protect home loans should be reducing the term plan. If the seller is selling you a product with returns and is not a term, it's a definite red flag. He should also consider the borrower’s current insurance cover by doing a need analysis and then suggest accordingly the required cover.
Purchasing Home Loan Insurance From The Same Lender Is Not Mandatory
It is not mandatory to purchase home loan insurance from the same lender. The concern has been previously clarified by both the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai) that borrowers are not under any obligation to buy a policy from the lender. However, if someone feels they are being pressured to purchase a policy, they can report the matter to the National Housing Bank (NHB) or the RBI. Additionally, consumers can seek legal remedies if they think they are being misled by the lender. “To ensure such a situation tips in their favour, I urge borrowers to document every coercive tactic and make the most of legal provisions. I would also recommend aspiring borrowers check the home loan essentials beforehand to prepare against unwarranted seller tactics and coercions,” says Arora.
What To Do If You Have Been Mis-sold A Policy
Policy buyers get a 30-day free look period. During this period, they must read and review the policy document and clarify doubts from the insurance provider. If they are confident they do not require the policy, they can cancel it and seek a refund of the premium they paid. However, borrowers must ask about this ‘free look period’ and clauses related beforehand to make the most of it when a situation arises.
Typically, to cancel an insurance policy accompanying a home loan, borrowers can visit their bank branch in person or contact customer service to initiate a prompt cancellation. They can subsequently submit a written request to initiate a cancellation, stating the factual reasons why they think the policy was mis-sold.
In case you have crossed the 30-day period, then you may write to the Grievance Redressal Officer (GRO) and request cancellation. It should be noted that if the borrower has not made any claims, they may be eligible to receive a pro-rata refund of the premium they paid for the coverage. In case the complaint is rejected, borrowers can appeal again. They may also consider seeking help from grievance redressal platforms like Bima Bharosa and the Insurance Ombudsman.
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