When it comes to financial planning, everyone wants to leave behind an asset for their families. Nobody wants to leave behind a liability. And when it comes to your house, you want to ensure that your family inherits your house and not your home loan.
Repayment of a home loan is a long term activity. If something were to happen to you, your family should have enough to settle the loan and own the house completely. There are many ways to ensure this. You purchase life cover enough to settle all your outstanding liabilities and provide for life milestones.
Alternatively, you can purchase Home Loan Protection Plans (HLPP) when you avail a home loan. With HLPPs, the insurance company settles the home loan with the bank in case of borrower’s demise. In one of my previous posts, I had discussed Home Loan Protection Plans in details and also highlighted many issues with HLPPs.
In my opinion, a pure term plan is a far better option than a HLPP. In this post, I will discuss one of the plans sold by ICICI Bank for loan protection in detail. I will discuss Home Safe Plus issued by ICICI Lombard for ICICI Bank Home Loan customers. Of course, the customers can’t be forced to purchase the product. This is not a HLPP in true sense since it is not a group policy per se. But the policy is assigned in favour of the bank to give it a similar flavour.
Home Safe Plus provides six kinds of insurance covers:
- Critical Illness Cover
- Accidental Death Cover
- Permanent Total Disability Cover
- Loss of Employment Cover
- Property Insurance
- Content Insurance
The bank sells two policies as part of the Home Safe Plus product.
- ICICI Lombard Secure Mind – Provides the first four covers i.e. Critical illness, accidental death cover, Permanent Total Disability Cover and loss of employment cover.
- ICICI Lombard Home Insurance – For property and content insurance.
Bizarre, isn’t it? Home Safe Plus is essentially a wrap product.
- It is a single premium product.
- You pay once and get coverage for five years.
- The bank will offer a top-up loan for purchase of this product. The repayment term of the top-up loan will be in line with the repayment term of your home loan. Though the coverage is for 5 years, you will pay EMI on top-up loan for 15 or 20 years.
- It is a level cover product (and not reducing cover product) i.e. the Sum Assured remains constant irrespective of the outstanding principal amount.
- If the insured event were to happen, the insurance company settles the loan with the bank and any excess amount will be paid to the borrower or its nominee.
I will not go into whether it is economical to purchase Home Safe Plus or not. I will also not go in ICICI Lombard Home insurance product. It is a regular home insurance product that provides you financial protection against damage to your property and household items from natural calamities such as flood, lightning etc. The plan may also cover you for losses due to burglary. For more on Home Insurance plan, go through this post. In this post, I will focus my attention only on ICICI Lombard Secure Mind Product and whether it makes for a good loan protection cover.
ICICI Lombard Secure Mind (Policy Wordings)
It is a critical illness plan which provides a lump sum payout in case the policyholder gets diagnosed with a specific critical illness. Common critical illnesses are cancer, kidney failure, multiple sclerosis, heart attack etc. Critical illness plans are fixed benefit plans (and not indemnity plans) and provide a fixed benefit irrespective of medical expenses incurred. So, if you get diagnosed with a critical illness, the insurance company will settle the loan with the bank and any excess amount will be paid to the policyholder/nominee. For more on Critical Illness plans in general, you can go through this post.
In addition, it also provides a personal accident cover. So, this insurance plan will make a payment if the policyholder dies or gets permanently disabled (total) due to an accidental injury. The death or permanent disability should happen within 12 months of the accident. For more on personal accident plans, you can go through this post.
Apart from above, the plan also covers 3 EMIs of the home loan in case of loss of job. And the termination should be due to dismissal, temporary suspension or retrenchment by the employer. This cover is only applicable to salaried individuals. Voluntary resignation is excluded.
There are many caveats as you would expect in any insurance plan. However, those are typical of Critical Illness Plans and personal accident plans. There is nothing special in this plan.
The plan does offer some utility. In case the borrower gets diagnosed with cancer, he will have to spend huge sums on treatment. This critical illness plan will ensure that he does not have to worry about home loan EMIs anymore. In case of permanent disability due to an accident, the earning ability of the member can be compromised. Secure Mind plan will be helpful in this case too.
Points to Note
- The premium paid for Secure Mind (Critical Illness Plan) is not eligible for tax benefit under Section 80C. This is because Secure Mind is not life insurance.
- Only the part of premium towards purchase of critical illness cover is eligible for tax benefit under Section 80D of the Income Tax Act. The insurance company provides you separate receipt for Section 80D tax benefit.
- There are no tax benefits for personal accident insurance covers. Hence, the premium paid for the personal accident cover is not eligible for tax benefit.
- The loan repayment term may be 10, 15 or 20 years. However, the maximum tenor for Secure Mind is only 5 years. If you need insurance beyond 5 years, you will have to purchase another plan.
- There is no life cover. Life cover is only for accidental death and if a critical illness results in death. I am not a medical expert but I am sure that there are ways other than accident and critical illnesses which can lead to person’s death.
- If the borrower were to die due to some other cause, there shall be no payout from the insurance company. Do go through this case filed in consumer forum. Search for Home Safe Plus. You will realize the shortcomings of this product. Even the forum took cognizance of the shortcomings.
- If the borrower were to die suddenly (say, in sleep because of a heart attack), would the borrower’s family get post mortem done to establish the cause of death? The insurance companies never indulge in charity. If they can find a way not to honor the claim, they won’t.
- As per a Critical Illness insurance plan, every critical illness has a severity attached to it. Hence, it is quite possible that what may be a heart attack according to you may not be a heart attack as per insurance company.
- Definition of accident is also quite complex. An Accident is an unexpected, unforeseen and undesirable event. And the injury must be due to external, violent, visible and evident causes. So, if the borrower dies or gets disabled after slipping from stairs in his bathroom or in his home, it may not be covered. However, if the same thing happens in your office, it may be covered.
The question I have for ICICI Bank management: Why does this loan protection plan not provide life cover? It is completely beyond me. Yes, critical illness plan and personal accident cover are good add-ons. But what about plain vanilla life cover? Does the borrower not need a life cover? If the borrower were to die due to some other reason, who will settle the loan? Will this insipid Home Safe Plus save the family financial and mental agony?
ICICI Home Safe Plus is a poor product and serves little purpose in your insurance portfolio. I don’t think ICICI Bank thought anything beyond their commissions while deciding to offer this plan to its customers. And yes, ICICI Bank gets commission from ICICI Lombard for selling these plans.
ICICI Bank sells loan protection without a proper life cover. And I am not joking. I don’t think there is a way ICICI Bank can defend itself on this. It is sad that banks indulge in such tactics to earn commission. They are not satisfied with the interest rate spread that they are earning on the loan. They want to earn hefty commission selling products that customers don’t really need. And ICICI Bank is not the only bank indulging in such tactics. I am okay with ICICI Bank earning commissions on the sale of insurance products. Every salesperson gets commission on the products sold. ICICI Bank is no different. But they shouldn’t make mockery of customer’s trust. What will happen if the borrower were to die due to some other reason? Who will settle the loan? The insurance company won’t, for sure.
I am not saying you don’t need financial protection against unfortunate events in life. You do. But you must purchase the right type of insurance. If you want financial protection against death, purchase a pure term cover. If you want to avoid a hit to your finances in case of a critical illness, purchase a critical illness cover. If you want to safeguard against accidental death and disability, purchase a personal accident cover.
Only if Home Safe Plus (Secure Mind) had plain vanilla term life cover, it would have been an acceptable product. Unfortunately, that’s not the case. Home Safe Plus has been around for a long time. It is difficult to imagine that ICICI Bank does not realize what they are selling. There is just one explanation: They don’t care.
There is just one way to counter this brazen attitude of banks: Awareness. Be aware and make informed decisions. You don’t have to buy what banks sell. You can say No.