"New homeowners today who have gone through the mortgage application process often express their frustrations regarding the insurance policies that are bundled as conditions for loan approval from banks. With premiums considered quite high and paid in a lump sum, many are left wondering why they need it and what benefits it provides. Terrabkk has gathered information to answer these questions for you."

Typically, the insurance that comes with home loans falls into only three categories:

            Fire Insurance is designed to protect the home from fire incidents, covering only the house itself and not the land. In the event of a fire, for homes without debt, the benefits under the policy go directly to the homeowner. However, if the house is mortgaged with a bank, the beneficiary is the bank, which will deduct the amount from the remaining debt. The homeowner's debt may be reduced or eliminated, depending on the case. Fire insurance covers damage to the home from various incidents, including:

·       Fire

·       Lightning strikes

·       Gas from lighting or household use, but excluding explosions due to earthquakes

·       Other coverages specified in the policy

          Fire insurance is typically a short-term policy that must be renewed regularly, such as every year or every 2-3 years. The longer the coverage period chosen, the lower the premium will be. The premium for fire insurance is not fixed and depends on the insurance company and the type of building, but generally, for single-family homes, it should not exceed 0.1%. This insurance is mandated by law for all new homes.

         Disaster Insurance protects homes from various natural disasters such as floods, earthquakes, and storms, provided these disasters meet the criteria for being classified as disasters, including:

·       Official declaration of a severe disaster by the Ministry of Interior through the Department of Disaster Prevention and Mitigation

·       Total compensation claims from insured parties under the disaster insurance policy exceeding 5 billion baht per incident occurring within 60 days, with claims from at least two parties

·       Earthquakes with a magnitude of 7 or higher

·       Storms with wind speeds of 120 kilometers per hour or more

However, disaster insurance does not cover homes in areas designated as flood retention zones, water storage areas, or waterways that already receive direct assistance from the government. Disaster insurance for residential homes requires a premium of 0.5% of the home's value per year, which is not mandated by the government, so it is optional.

        Property Protection Insurance TMRA is life insurance designed to protect homes or land for borrowers applying for home loans. If a homeowner who has borrowed money from a financial institution to purchase a home dies or loses the ability to repay the loan before the contract is fulfilled, the insurance company will pay off the remaining debt to the bank. This serves as a safeguard for the future of the borrower's family while also mitigating risk for the bank.

          The premium depends on the appraised value of the collateral or asset, which varies by insurance company but is generally not more than 5.5%. This is a long-term insurance policy that can be paid in a lump sum, possibly for just 3 years or for the entire loan term. The insured amount decreases as the debt reduces each year. This type of insurance is not mandated by the government, so it is up to the borrower's discretion whether to take it out.

          Among the three types of home insurance, only fire insurance is mandatory, with a premium of just 0.1%. Therefore, banks have no right to force the purchase of additional insurance.

          The most problematic insurance for borrowers today is the Property Protection Insurance TMRA, which has relatively high premiums that must be paid upfront when signing the loan agreement. Many banks imply that it is mandatory because they benefit from this type of insurance as it mitigates the risk of bad debts. They may offer lower interest rates or allow the insurance premium to be paid as an additional loan. They communicate to homeowners that this type of insurance is legally required, which is not true.

          However, the absence of a legal requirement does not mean it is without benefits. On the contrary, this type of insurance is extremely beneficial for low-income individuals who are the primary earners of their families, as it helps cover the entire debt in the event of the borrower's death or disability, preventing the burden of mortgage payments from falling on the family. However, it is essential to check whether it covers all debts. If the homeowner can afford to pay the debt, this type of insurance may not be necessary.

         Property Protection Insurance TMRA does not have to be taken out with the financial institution that provided the loan. If a better insurance company with more favorable conditions is found, it can be obtained there instead. Banks have no right to impose any requirements. If a bank claims to mandate this insurance, it can be reported to the Office of the Insurance Commission (OIC) at hotline 1186 or www.oic.or.th for further investigation.

 

Article by: TerraBKK

"Chuwit" warns people "buying homes with insurance" to beware of "green banks and giant insurance companies"! On December 16, 2014, Mr. Chuwit Kamolvisit, former leader of the Love Thailand Party, posted on Facebook through the page "Chuwit I'm No.5" about a cautionary tale regarding buying homes with bundled insurance, stating that even after paying off the mortgage, one may still not receive the title deed, which is true for some banks. He noted: "After paying off the mortgage, one still cannot obtain the title deed. This has been a long-standing issue. Now, banks collaborate with insurance companies (affiliated) to profit by using the following methods:"