In the wake of
the COVID-19 pandemic, the fragile nature of human life has been exposed like
never before. As bankers, we have a unique vantage point to witness the
repercussions of unforeseen events on families and society. While the importance
of insurance has garnered some attention, the momentum is fading, and a
significant percentage of borrowers remain unprotected. In this article, we
delve into the critical need for mandatory insurance coverage for the life of
borrowers availing various loan products and how it can safeguard both families
and banks from the burden of unexpected tragedies.
It was years
back, when I was heading a branch and a family approached my cabin in the midst
of my regular routine at the bank, their faces etched with anguish and
frustration. They had lately lost a close family member, who also happened to
be the household's sole breadwinner. This devastating death had left the
surviving spouse with both mental suffering and tremendous financial
responsibility, as they were now alone liable for the home loan they had taken
out.
The truth was we
tried very much to convince the now-deceased person to take a life insurance
cover. Despite our team's honest efforts to persuade the now-deceased borrower
and their spouse to consider life insurance, we were unsuccessful. They saw
life insurance as an unnecessary expense and elected not to purchase it. Many
bankers reading this would have come across such situation in their life where we
genuinely tried to convince the borrowers to insure their loan against their
life, but failed.
The Current Scenario
Building
insurance, also known as property insurance, is compulsory when availing home
loans. It safeguards both the borrower's investment and the lender's interests
in case of damage or destruction to the property. This mandatory requirement
ensures that all borrowers protect the physical asset used as collateral for
the loan.
On the other
hand, life insurance is not mandated for borrowers, and this is where the
concerning trend emerges. While borrowers diligently insure the building, they
may overlook the need to secure their lives, leaving their families vulnerable
to financial hardships in case of an unforeseen tragedy.
According to
information gathered from various insurance companies through inquiries, it has
been revealed that less than 25 percent of the home loans offered by PSBs
(Public Sector Banks) have life insurance coverage for the borrowers.
The Consequences of Uninsured Loans
When a borrower
with an outstanding loan amount passes away unexpectedly, their family is left
vulnerable and burdened with both emotional and financial distress. The loss of
a sole breadwinner can lead to devastating consequences for the surviving
family members, pushing them into a spiral of debt and insecurity. In such
cases, banks also face challenges in recovering the loan amount, leading to
potential losses that can impact their overall financial health.
Bankers' Genuine Efforts and Customer
Perceptions
As bankers, we
genuinely care about the well-being of our clients and advocate for insurance
coverage to protect their families. However, we understand the reluctance of
some borrowers who perceive insurance as an extra financial burden. Striking a
balance between persuading clients to opt for insurance while ensuring they
don't shy away from taking loans is a delicate challenge we often face.
Some borrowers
may view life insurance as an unnecessary additional cost, especially if they
are already managing their finances cautiously. Others might have
misconceptions about the complexity of the insurance process or the
affordability of premiums.
The Need for Government Intervention
While individual
efforts are essential, the government must take a bold step to make insurance
coverage for borrowers mandatory. Implementing a policy that compels borrowers
to insure their lives when availing retail loans, such as personal loans, car
loans, and home loans, will provide much-needed security to families and reduce
the burden on banks.
Benefits of Mandatory Insurance for
Borrowers
Financial Security for Families:
Mandatory insurance coverage will act as a safety net, ensuring that if an
unforeseen tragedy strikes, the family will be financially protected from the
burden of loan repayments.
Mitigating Risks for Banks: Insuring
borrowers' lives reduces the risk of non-repayment due to unfortunate events,
thereby safeguarding banks from potential losses.
Strengthening the Economy: By reducing
the number of non-performing assets and aiding families in times of distress,
the overall economy will gain stability and resilience.
Fostering a Responsible Borrowing Culture:
With mandatory insurance, borrowers will become more aware of the importance of
planning for the future, leading to a more responsible borrowing culture.
Conclusion
The COVID-19
pandemic has highlighted the vulnerability of human life, urging us to rethink
our approach to financial planning and security. Making insurance coverage for
borrowers mandatory for retail loans is a vital step towards safeguarding
families and strengthening the banking sector. As bankers, we will continue to
advocate for our clients' well-being and encourage them to view insurance not
as an added cost but as a fundamental pillar of protection. Together with the
government's intervention, we can build a more secure and resilient future for
our society.
If you have any
captivating tales like this while working as a banker, we invite you to share
them with us. Whether it's a heart-warming incident, an unexpected turn of
events, or a story of vigilance and trust, we are eager to read your
experiences.
Please feel free
to share your stories with us at psbdigest@gmail.com
