What is Home Loan Insurance?
Home loan insurance allows the insurer to settle outstanding loan amounts with the bank or lender in specific unforeseen situations. Some of these plans offer coverage for the applicant, house, and its contents. Also, the premium paid towards the insurance is eligible for a tax benefit.
Home loan insurance is usually availed while purchasing the loan. It’s available with the institution providing the financing and is generally bundled with the loan itself.
While procuring this type of insurance is recommended, it’s sometimes purchased as an obligatory part of your home loan. However, this shouldn’t be done since no regulations mandate loans with insurance. Therefore, make sure to pick a suitable scheme, which may not be the one the salesperson offers.
Why Was Home Loan Insurance Purchased?
Home loan insurance plans come in handy when the borrower can’t pay their debts. Such situations may arise due to the applicant’s demise or job instability. Customers can opt for regular schemes or those with extra features for great coverage. This insurance is crucial for borrowers, as it ensures their dependents don’t lose their home during crises or their absence.
Home loan insurance can be likened to term insurance. Customers receive coverage until the period of their loan repayment expires. Following the payment of the outstanding amounts, their insurance term ends.
However, if the borrower dies during the term period, their family can claim the insurance and repay the outstanding amount. As a result, the bank can’t seize the house or other collateral assets.
In addition, most home loan insurance plans offer lower coverage. The value of the cover is connected to the outstanding home loan amount. This way, the assets insured go down when the borrower repays the loan. The insurance company directly makes payments for outstanding amounts to the lender or bank to settle the loan.
On the other hand, coverage remains the same when it comes to term insurance. Regarding term schemes, the assets insured go to the person who can make payments to the bank or lender for repaying the loan.
Examples of Mis-Sold Home Loan Insurance
There have been many cases of mis-sold home loan insurance, making the borrower eligible for a refund. Here are some of the most common instances:
- Inadequately explained policies – the borrower wasn’t made fully aware of their plan, meaning they didn’t understand what they were entering into.
- Sales to ineligible people – for instance, the financial institution sold home loan insurance to self-employed customers or people with underlying medical conditions. As a consequence, many plans didn’t pay out when necessary.
- Valuable commissions – many recent guidelines on home loan insurance mis-selling deal with commissions that lenders receive on their PPIs. For example, if over 50% of your PPI commission goes to the lender and you’re not notified about it, you might be entitled to compensation.
- Purchasing insurance under a false belief – the salesperson may persuade the borrower to obtain the insurance by claiming it’s mandatory, or it increases the odds of getting the loan.
No, lenders mortgage insurance (LMI) is a payment a borrower must pay when they do not have a home loan deposit of 20% or higher. This is because lenders consider customers with smaller deposits to be ‘risky borrowers’ — LMI safeguards the lender should a borrower ever default on their repayments.
Mortgage protection insurance is insurance a borrower can take out when they apply for a home loan. This insurance protects borrowers by covering the cost if they cannot meet their repayments.
This will depend on the terms of your policy. Mortgage protection insurance can range from anywhere between three months to three years.
No, mortgage protection insurance premiums are generally not tax deductible.
Yes. If you believe you were mis-sold home loan insurance, you may be entitled to a home loan insurance refund. Here are some of the common instances when this might occur:
- You were initially ineligible for the product due to your employment status or an underlying medical condition.
- The policy was not properly explained to you.
- You were told that the policy was mandatory to secure a home loan.
LMI is typically classified as a non-refundable payment when taking out a mortgage. However, there may be some instances where a person is eligible for a partial LMI home loan insurance refund, as these policies are tailored for every borrower.
If you choose to refinance your home loan, you may be required to pay LMI again if your deposit remains below 20%.
You may be entitled to a refund if you’ve been sold home loan insurance. Common reasons for obtaining a home loan insurance refund include the following:
- You were not properly advised of the policy, and its terms and conditions
- You were not eligible for the policy at the time of purchase
- You were not told that the policy is not mandatory for the loan
You’re free to cancel home loan insurance at any time. To cancel your policy, you’ll need to contact your lender. If you feel that you were mis-sold the insurance policy and would like to get a refund on premiums you’ve already paid, get in touch with the team at Get My Refund — we’ll manage the process for you.
You can cancel your home loan insurance policy at any point during the term of the loan. At Get My Refund, we can help you get a refund on any amounts already paid on your policy — this applies to current and previous loans.
Yes. If you think you mis-sold home insurance, you can apply for a home loan insurance refund. There are numerous reasons for wanting to claim back previously paid insurance premiums, and at Get My Refund, we handle the entire refund process for you.