What is a mortgage redemption policy?
Rakhi Kumari, Jaipur
A mortgage redemption plan is an insurance that is available to those who take a home loan and corresponds to the quantum of loan that they take. The advantage of such a policy is that in case the insured dies during the loan repayment period, the insurance pays off the loan liability. This plan normally provides insurance cover only up to the age of 65 years because all loans are often liquidated by an individual by the time he reaches this age, if not by the time he retires at the age of 60 years.
Bear in mind that such a policy has no surrender value or survival benefits. If the policyholder dies during the term of the policy, all outstanding loans declared at the beginning of the policy are payable by the insurer as per the prepared schedule. Lenders insist on borrowers to take this policy as it guarantees that the loan will be repaid even in case of the demise of the borrower during the repayment of the loan. Take this policy independently; do not include this as part of the home loan, as it will work out expensive. Many a times the lender adds this policy along with the loan sanctioned, which means you land up repaying the loan for not just the house, but also on the policy.