You want your family to inherit your house, not your housing loan. To ensure this, many purchase a term insurance plan when they take a home loan. Proceeds from the life insurance plan can be used to square off loan after your demise.
Similarly, lenders (bank and NBFCs) also sell Home Loan Protection plans (HLPPs) to the borrowers. Home Loan Protection Plans (HLPPs) are essentially term life insurance plans.
If the borrower were to die during the policy term, the insurance company will settle the loan with the bank. Any excess (of Sum Assured) over the loan outstanding will be passed to the nominee of the borrower (policy holder).
I had written a detailed post on Home Loan Protection Plan (HLPP) on EmiCalculator. Suggest you go through the post. There are a few issues with such plans. The aforesaid post discusses such issues in detail. Do note, even though I have many reservations against HLPPs, such plans can serve a purpose in your portfolio, especially those who do not like to purchase term life insurance.
In this post, I will discuss ICICI Lombard Home Safe Plus. Even though the plan is not a HLPP in the purest sense, the plan is pushed by the ICICI Bank (or its housing finance company) to its home loan borrowers.
ICICI Home Safe Plus
ICICI Home Safe Plus is a wrap product that includes two separate insurance plans.
- ICICI Lombard Secure Mind
- ICICI Lombard Home Insurance
ICICI Home Safe Plus provides financial protection against six types of adverse events:
- Critical Illness
- Accident Death
- Permanent Disability
- Temporary Loss of employment (only for 3 EMIs)
- Damage to home structure
- Damage to home contents (includes loss due to burglary too)
First four covers are provided through ICICI Lombard Secure Mind.
The last two covers are provided through ICICI Lombard Home Insurance.
- ICICI Home Safe Plus is a single premium plan. You pay for one year and get coverage of 5 years.
- It is a level cover product (and not a reducing cover plan). This means coverage under the plan remains constant irrespective of the quantum of loan outstanding.
- The bank will happily offer you a top-up loan to fund the single premium amount. You can repay loan over the course of your home loan.
ICICI Lombard Home Insurance is essentially a property/home insurance plan. Such plans provide financial protection against damage to house structure due to fire and other natural calamities such as flood and earthquakes. In this post, I will not focus on this plan since it is not a loan protection plan.
In this post, I will focus only on ICICI Lombard Secure Mind plan.
The focus of the post is not to assess if Secure Mind is an expensive plan or not.
The intent is to see if ICICI Lombard Secure Mind makes for a good loan protection plan.
ICICI Lombard Secure Mind
ICICI Secure Mind is a critical illness plan and personal accident cover.
If you get diagnosed with a critical illness such as cancer, heart attack, renal failure, multiple sclerosis, paralysis etc the insurance company pays you the Sum Assured.
Must Read : What are Critical Illness plans?
If you have taken a loan, this is a useful cover. If you get diagnosed with a critical illness, not only do you have to shell out money for expensive treatment but your earning ability may also be compromised for a brief period. In such a case, payout from insurance company can be used towards treatment costs and meeting loan commitment.
In addition, the plan also provides financial protection against permanent disability and accidental death. Permanent disability can also affect your earning ability and hence your ability to repay loan.
Must Read: Should you purchase Personal Accident plans?
Hence, ICICI Lombard Secure Mind does add value to your insurance portfolio and can be helpful if you are diagnosed with a critical illness or meet a fatal accident.
Points to Note
- Premium component that goes towards critical illness plan is eligible for tax benefit under Section 80D (and not Section 80C). The insurance company provides you separate receipt so that you can claim tax benefit.
- You get the tax benefit only in the year of payment even though the cover is for 5 years.
- Premium component that goes towards personal accident cover is NOT eligible for any tax benefit.
- There is no tax benefit under Section 80C because there is no life cover.
Issues with ICICI Lombard Secure Mind
For ICICI Secure Mind to be a good loan protection cover, it should have covered most scenarios that could compromise your (or your family’s) ability to repay loan.
The first thing that comes to mind is the demise of the borrower. You would expect a good loan protection plan to cover all eventualities of death.
Unfortunately, ICICI Home Safe Plus (or ICICI Secure Mind) fails miserably on that front.
ICICI Lombard Home Safe Plus does not provide plain vanilla life cover. You might be covered in the event of death due to a specified critical illness or in an accident. However, those are not the only ways that could result in death of the borrower.
If the borrower dies due to any other reason, there will be no payment from the insurance company. The family of the borrower will be left to fend for itself. How will your family repay the loan?
Even with critical illness plans and personal accident cover, we all know how subjective these critical illnesses or accidents can be. Every critical illness has severity attached to it. You may think you may have had a heart attack but it may not be a heart attack as per the insurance company (policy wordings). And don’t forget survival period clause.
By the way, this is not just a figment of my imagination. These things happen quite frequently with critical illness plans. You must go through case where the insurance ombudsman noted the flaws in the plan (and the way it was sold). Search for Home Safe Plus in the pdf document.
Banks and insurers are partners in crime
ICICI could have designed a product which had pure vanilla life insurance too. But it is not easy to fleece customers by selling a pure term product. In my opinion, to fleece customers, insurers (and banks are complicit in selling such plans) do two things.
- Complicate a product to an extent that customers cannot understand easily.
- Structure the product in a way that leaves scope for rejecting the claim.
There is little scope for rejecting a claim in the case of term life plan. The insured event (demise of the policyholder) is quite crisp. Not much an insurer can do about this.
However, with critical illness plans and personal accident covers, it is never as objective. And insurers relish the realm of subjectivity. With all the legal prowess and delay tactics at their disposal, there is only one likely winner, the insurance company. You can always fight it out and get your due but the odds are heavily stacked against you (or your nominees).
How is ICICI Bank complicit?
ICICI Bank may wash off its hands saying that the product is sold by ICICI Lombard and customers have complete choice in purchasing such plans. But don’t we know how these products are sold? Don’t we know how loan applications are kept hanging for approval till such time you purchase such a plan?
ICICI Bank happily offers a top-up loan to borrowers to purchase ICICI Lombard Home Safe Plus. Even though the tenor of the loan may be 15-20 years, the policy term is only 5 years.
Why would ICICI Bank offer a loan for such a plan? And the policy is assigned in the name of the bank.
What happens if something happens to the borrower after 5 years? Well, that is your problem. The bank has already booked commission income. And if you (or your family) can’t repay the loan, they will sell your house and recover money.
If you want cover beyond 5 years, you will have to purchase another plan.
You have to be extremely naive to let ICICI Bank off the hook.
Why would ICICI Bank sell such a plan?
ICICI Lombard is an insurance company. It can structure whatever it wants. However, there is no compulsion on ICICI Bank to push such useless product to its borrowers.
ICICI Bank knows very well this product does not provide adequate coverage to the borrowers (family).
I see no other reason than hefty commissions. Yes, ICICI Bank earns commission (by acting as an agent) when you purchase ICICI Bank Home Safe Plus plan.
Is ICICI Bank the only bank selling such sham insurance plans?
Unlikely. I don’t expect other banks to be any different.
These issues have been brought to my notice by my clients and some of the blog readers who have approached me with such issues. Incidentally, they have come to me only for ICICI Home Safe Plus.
I am sure other banks sell such plans too.
Should you purchase ICICI Home Loan Safe Plus?
ICICI Lombard Home Safe Plus (or ICICI Secure Mind) is a fine product in its own right.
The problem is with the context in which it is sold. It simply does not make for a good loan protection cover. ICICI Home Safe Plus would have been an acceptable as a loan protection plan if it had a pure life cover too (covered all eventualities of death).
You must avoid purchasing this plan.
If you have already purchased, appreciate the shortcomings of the plan and try to fill the insurance gap by purchasing a suitable term insurance plan.
What should you do?
Awareness is your only defence against rampant banks. As I have pointed out many times before, banks remain the worst places to seek financial advice. It is unfortunate that your interests hold the least priority for banks.
I do not have much issue in banks earning commission on sale of a good product.
However, there is no excuse for selling a product like ICICI Lombard Home Safe Plus that does not serve the intended purpose.
Do not go by what bank officials say. They will promise the world to you. Insist on providing policy wordings. Go through those wordings before making a decision.
Know your rights. The bank cannot force you to purchase a protection plan from its group company. You can purchase such plans directly from the same (or other) insurer and save on commission.
If you have taken a home loan,
- Purchase a pure term plan with adequate coverage. You can assign the policy to the lender if the lender insists. Avoid purchasing Home loan protection plans (HLPPs) from banks since such plans can be quite expensive.
- If you want critical illness cover, purchase a standalone critical illness plan. You can also purchase as rider to term insurance plan. Do note a critical illness plan/rider is not a substitute for a health insurance plan.
- Add a personal accident plan (standalone or rider) to round up your insurance portfolio.
- EmiCalculator: ICICI Home Loan Safe Plus: Review
- EmiCalculator: Home Loan Protection Plans: What bank official won’t tell you?
- EmiCalculator: Should you buy Home Insurance?
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