What is the importance of the Life and Property Insurance? Why are they mandatory?

Life insurance is a form of transferring risk from the customer to the insurance company. Insurance reduces the financial exposure and facilitates the life of family members in the case of a tragic event (death). Insurance policies have an important social impact as they decrease the individual costs and public ones in case of tragedies.

If the borrower dies of becomes permanently disabled, the insurance company pays off to the bank the outstanding loan amount, and the bank relinquishes its claims on the property. In this way, family members are protected by further bank obligations.

Similarly as with life insurance, it is in the bank’s interest to ensure that the borrower regularly pays the monthly premiums for the property insurance. In this way the bank’s collateral is protected from disasters such as earthquakes or fires.

Life and property insurance policies are mandatory requirements by the bank.

The customer is free to take out additional insurance against potential damages such as that caused by fire, water, broken windows, or bodily injuries to the borrower which can affect his or her ability to repay the loan.