Last Updated on April 5, 2026 by Hemant Beniwal
You are sitting in the bank. The home loan is almost approved. And then the relationship manager slides a form across the table — “Sir, you also need to take this insurance to protect your loan.”
Your heart sinks a little. You have already stretched your budget. But you are desperate for the loan, and the banker is making it sound compulsory.
I am going to be blunt: that insurance is one of the worst financial products sold in India today.
When I first wrote about this years ago, I wanted to title it “Home Loan Insurance — Daylight Robbery.” The core truth has not changed. But the tactics have gotten smoother.
⚡ Quick Answer
Home loan protection insurance is NOT mandatory — neither RBI nor IRDAI requires it. Banks push it because it earns them commission. A simple term insurance plan gives better coverage at a fraction of the cost, and it stays with you even if you switch lenders.
Why Home Loan Insurance Is a Raw Deal
Think of it this way. You buy a pressure cooker. It comes with a 5-year warranty. But the shopkeeper says — “Sir, you also need to buy our special protection plan.” That plan costs five times more than a regular extended warranty from the same brand. And the coverage actually shrinks every year.
That is exactly what home loan protection insurance does.
It Costs Several Times More Than Term Insurance
The math is devastating. For the same Rs 50 lakh cover, a home loan protection plan from any major insurer will charge you 5x to 7x more than a straightforward term insurance plan.
Here is a general comparison that holds true across insurers:
| Parameter | Home Loan Protection Plan | Term Insurance Plan |
|---|---|---|
| Annual Premium (Rs 50L cover, age 35) | Rs 30,000 – Rs 50,000+ per year | Rs 5,000 – Rs 8,000 per year |
| Cover Over Time | Reduces as loan outstanding decreases | Stays at Rs 50 lakh throughout |
| Tied to Loan? | Yes — if you port or close the loan, insurance is gone | No — stays with you regardless of any loan |
| Benefit Paid To | Directly to the bank | Your family — they decide how to use it |
| Additional Benefits | Usually just death cover | Death + terminal illness + disability waiver + optional critical illness |
| Flexibility | Locked to the loan tenure | You choose tenure, can stop anytime |
A client came to me in 2023 — Sunil (name changed), a 38-year-old IT manager from Pune. His bank had bundled a loan protection plan into his Rs 75 lakh home loan EMI. He was paying Rs 42,000 per year for reducing cover. We replaced it with a term plan at Rs 7,200 per year for a flat Rs 1 crore cover. He saved over Rs 34,000 annually — and got better protection.
You End Up Paying Interest on the Premium
This is the part that makes my blood boil.
If you do not pay the loan protection premium upfront, many banks bundle it into your EMI. Which means you are now paying interest on the insurance premium — at your home loan rate. So that Rs 40,000 premium actually costs you Rs 55,000-60,000 over the loan tenure.
And you lose out on the tax benefits you would get under Section 80C with a separate term plan.
The Cover Shrinks, But Your Family’s Needs Do Not
Most home loan protection plans are “reducing cover” policies. The sum assured drops as your loan outstanding reduces. By year 15 of a 20-year loan, the cover might be just Rs 10-12 lakh.
But here is the thing — if something happens to you in year 15, your family does not just need the remaining loan amount. They need money to live. They need funds for children’s education, for daily expenses, for rebuilding their financial life. A term plan pays the full sum assured regardless of when the claim happens.
It Locks You to Your Lender
Home loan rates change. A smarter borrower ports their loan to a lower-rate lender every few years. But if your insurance is tied to the loan, porting becomes messy. Some banks will not transfer the insurance. Some will cancel it and make you buy a new one from the new lender.
With a term plan, your insurance has nothing to do with your loan. Port freely, prepay freely, close the loan early — your cover stays intact.
Paying too much for the wrong insurance?
A proper term plan costs 80% less and covers far more. Let us help you get the right protection.
Do Not Confuse Home Loan Insurance with Property Insurance
These are completely different products, and many borrowers mix them up.
Property insurance (also called home insurance) protects the physical structure of your house against fire, earthquake, floods, and burglary. This is genuinely useful and reasonably priced.
Home loan protection insurance pays off the remaining loan if the borrower dies. This is what banks push — and this is the product you should replace with term insurance.
If your bank mentions “home insurance” during the loan process, make sure you understand which one they are selling. Property insurance is worth considering. Loan protection insurance is not.
What to Do When the Banker Pressures You
I have seen bankers use every trick — from emotional guilt (“What if something happens to you?”) to outright lies (“It is mandatory, sir”). Here is exactly what to say:
Script 1 — The Awareness Card: “I know that RBI and IRDAI have confirmed that home loan insurance is not mandatory. I would like to proceed with just the loan.”
Script 2 — The Written Proof Request: “Could you give me a written statement that says home loan insurance is compulsory for this loan? I will wait.” (They will not — because it is not.)
Script 3 — The Existing Cover Card: “I already have a term insurance plan that covers more than the loan amount. I do not need additional cover.”
Script 4 — The Escalation Card: “If you insist on making insurance mandatory, I will need to escalate this to your branch manager. And if that does not resolve it, I will file a complaint with the RBI Integrated Ombudsman.”
The RBI’s Integrated Ombudsman Scheme handles complaints against banks. If a bank forces you to buy insurance, you can file a complaint online at cms.rbi.org.in. The ombudsman can award compensation of up to Rs 30 lakh for financial loss.
Most banks back down at Script 2. The ones that do not will definitely back down at Script 4.
The Right Way to Protect Your Home Loan
Instead of a home loan protection plan, do this:
Buy a term insurance plan with a sum assured that covers your total loan amount plus 3-5 years of family expenses. This way, if something happens to you, your family can pay off the loan and still have money to live on.
The premium will be a fraction of what the bank charges for loan protection. And the cover will not reduce over time.
If you already have a term plan with adequate cover, you do not need any additional loan insurance. Tell the bank exactly that.
Not sure if your current term plan is enough?
We review your insurance needs as part of comprehensive financial planning.
A home is the biggest purchase most families will ever make. The insurance that protects it should be chosen with the same care — not picked up as a side dish because the banker said so.
Your family deserves protection that works for them, not for the bank.
💬 Your Turn
Has your bank ever pressured you into buying home loan insurance? What did you say to them? Share your experience — it might help someone else in the same situation.
Very useful information. Thanks for the valuable guidance.
[Personal Experience – Could not make the institution not force me to take the loan without an insurance]
Hi Hemant,
Thank you once again for the article. I have had a similar experience with home loan providers. I kept denying and none of the financial institution came back. The market situation and emotion is different as we approach for loan only when there is a pressing need and do not have enuf time to react.
In my case, after denying the major competitive institutions i was left with none and eventually have to settle down with an home loan insurance coverage. Unless RBI controls and circulates the policies that abides to all, we are at mercy of these institutions.
I had taken home loan protection plan along with HDFC home loan. It is getting deducted in EMI. Shall i ask bank that i dont need further insurance , so that my EMI gets reduced?
Wow, really an eye-opener. Thanks for this excellent info.
This helps us to be careful while approaching for housing loans with financial institutions.
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Thanks a lot for this article…read this at just the right time…was about to apply for a home loan insurance today…felt like going though the internet for some advise and bingo !!! got he link of your article..
Till now bank person has not mentioned anything about the insurance to me..not sure what is going on…
Thanks Ranjan ?
Thank you for your suggestion. I rethought on buying home loan insurance.
Good to know that this post helped 🙂
I also taken loan from SBI and they sold me the insurance but somehow i managed to pay it by cheque at last moment. This year also they called me to deduct from my saving account but i refused. Hopefully i saved remaining 4 premiums of this insurance. Since it also passed the grace period so i want to know whether they can force me to pay premium at this moment?
Hi Alok,
They can’t force you but you can take term insurance to cover this liability.
PNB Housing Finance is adding approx 2.65L for Insurance premium. They are not willing to agree with my request to not include that. What can be done?
@Hemant Beniwal, great coverage. Helps a lot to plenty of users though very less acknowledge them.
@ Kartik Nadar, I would advise you to cancel the insurance policy (you can do this as per policy) within 30 days when policy gets issues and you will get complete premium in return..
I have opted for a home loan in axis bank they r saying it is mandatory to have insurance for taking loan . I want 70 laks of loan if it’s compulsory to take insurance then how to proceed nd protect from unnecessary charges nd if insurance is not compulsory then wat to do
Hi Girsh,
Ask them in writing.
Hi Hemant,
I think u r too harsh on financial institution, which offer home loan insurance, because
1. Future is uncertain, if there is only one bread earner in a family, who is paying home loan EMI, if something happens to him, like (death), no one wants to vacate the home, due to that person death. Anyways if he have insurance, the insurance company will assure him to repay the loan.
2. It will make the lender and the client both safe…
Is it not right? Is it a worst product?? I don’t understand your logic!!
Hi Karthik,
I agree with your point “future is uncertain & we should have insurance to cover liability”. But why pay Rs 5 for something which is available for Rs 1?
I am not sure if you have read the article. I have suggested a better alternative from the same financial institution.
I agree Karthik – while I totally believe in Caveat Emptor and I appreciate that Author is sensitizing the readers about malpractices that some institutions (or rather the sales people) may be following, it is not as one sided case of Home Loan Insurance being the worst product as brought out by author. And the price difference is certainly not 1:5. These Home Loan Insurance Products are slightly more expensive because these are Group Insurance where buyers of these insurance products becomes a part of Group Insurance taken by the Home Loan provider. There are multiple advantages of buying a part of Group Insurance – namely no medical checkups i.e. no individual underwriting, immediate and hassle free loan settlement in case of an unfortunate event (that’s what matters the most when one needs it), high claim settlement ratio (don’t have a fact to prove it – but one can understand that all banks are keen to cover their loans first), critical illness rider for a longer period, permanent disability rider etc. Many banks are also able to offer competitive interest rates because they are able to sale insurance along with it.
Also if one opts for a one time payment of premium, the premiums have time value of money built in it. Banks’ interest in the loan taker going for one time payment premium is that they want to ensure that the Loan taker is fully insured for the time period of loan – Banks are kind of protecting themselves.
Finally, adding the cost of premium to EMI, over and above your sanctioned loan limit, makes an expensive insurance product in the reach of the buyers who are generally overstretched at the time of buying their property. And this is one of the key reason that many home loan takers should evaluate this product instead of end up postponing their decision to buy insurance, at their peril.
I am also told that loan porting is allowed under some of home loan protect plans in the market.
Therefore, the smart step should be that one should obtain all the details about the Loan Protect policy being offered by the bank much in advance (banks sales people have a habit to push it at the last moment and create urgency around it) , and call up an insurance adviser/ competing insurance firms/ check online portals to understand what product serves their need the best and then go for that insurance product. Also one may go for a shorter duration Loan Protect policy – say 8 – 10 years if the loan is for 15 years. BUT DO COVER YOURSELF – DON’T REMAIN UN/UNDER INSURED
Thanks Manish for sharing your views.. I may not agree with your observations but that’s fine..
That’s a good piece of information. Thank you, Hemant.
I have a situation here, I have got a loan sanctioned for 30L from PNB and the associate insisted me to take the insurance. He did not mention anything related to the insurance written. Now after reading your post, I spoke to him if he can cancel the insurance. PNB says they cannot at this point of time as the cheques have been prepared.(On me further insisting to cancel, they also told that it would be a bad remark on them. Hence cannot cancel the insurance.) They are yet to respond. Please suggest how can I deal with them.
Hi Nrusheel,
“Bad remark” is just a selling technique for financial institutions. Remind them they are in the business of providing loan – not selling insurance.
Alright. Thank you
Please send them a written mail saying I don’t want to opt for any insurance and they have to then go by that.
Verbally they will always try to enforce you to take the insurance. Ensure that you are putting the higher official’s in mail chain.
Hi Hemant,
I had got sanction of Home loan from Mutthut Home finance of Rs. 1330000/- & they are adding insurance premium of Rs.97801/- in a loan amount which will be recollected through EMI. I requested them to not add the Premium in loan amount but they are not ready also not giving proper information whether it is a single premium or should be renewed after some year. I also told them that I will buy it from other insurer but they are saying that they have tie-up with HDFC & I have to buy HLPP from them only. But I thinks the premium of Rs.97801/- for Only 1330000/- Loan amount is on very higher side. So kindly advise me what should I do & is there any wayout to reduce premium.
I have taken 35 L housing loan last year. However i have not opted for any Protection insurance plan. My EMI is 36K.
What would you suggest for my situation?
Thanks
Shyam
Hello,
I have recently applied for an home loan with DHFL of 60lacs and its in final disbursement stage. Now they have forced me to buy home loan insurance and home insurance of worth approx 1.5lacs and saying that they can’t disburse the loan without insurance. I have no choice except to agree on their condition since have to made payment to seller for flat purchase.
Would like to know if I can cancel the Home loan insurance on later stage but confused since I heared that only life insurance and health insurance have free look period of 15days wherein someone can cancel the insurance and request for refund. Appreciate if you could suggest on this urgently?
Sir, I am planning to take Home Loan from HDFC LTD. approx Rs.10 lacs, please suggest which insurance policy is best to be taken to cover home loan. HDFC is suggesting HDFC ergo HOme Surkhasa Plan.
Thanks
I am 40 years old and purchased a Home by taking Loan from HDFC bank for 24 Lakhs for 12 year tenure, Bank personnel asked me to buy Home loan insurance for 1.85Lakhs for 5 years which covers all incidents. I refused to do so, I just asked them for loan.
Can you suggest me any insurance which will give risk cover and money back for a definite term untill my home loan EMI ends
Hi , I have recently applied for loan in private housing fiance bank and loan amount got sanctioned but after the agreement of home they asked me to get home loan insurance at the same day else it will not go ahead.
I was helpless at that time and got the insurance policy but after reading this article i have asked the to cancel this insurance policy and raised request within free look period.
But bank denying it and pressurising me to go with same policy. I requested them and also explain I can attached my own term life insurance plan to insure home loan amount but they and not listing and forcing me to keep same home loan protection plan .
Some amount of loan amount is already credited to builder so in this case can they hamper my home loan and Can i still have chance to cancel there group insurance policy and attach my own policy. Please reply asap. Thanks in advance.
Hi i have applied for a loan from hdfc home loans. Person from hdfc had called me a month ago and informed me that your roi will be xyz and insurance will be mandatory in your case. I was in a meet so I said ok and disconnected. Now i thought during the time of 1st disbursment i will inform these people that i dont require any insurance, so now as per them as i have said YES a month ago over the call so now the file is approved and now i have to opt for it or else they will reject my file and I wont be getting any refunds on the same. So now where can i complaint regarding this or else if anybody can help me the mail ids where we can complaint. In need of a swift response.
Hi, I have taken home loan 7 months back. Unknowingly the insurance is also included as part of the loan.
I am realizing now, that the insurance amount is very huge, almost 3 Lakhs for 60L loan amount.
Can I cancel my insurance now, as my EMI is already started since 7 months.?
Or transferring loan to some other bank, by removing insurance is possible?
Please help.
Nice article n study report Mr Hemant. Thank you for your bringing this out to share with public.
While I agree to most of your parameters, I would like to highlight inherent limitations of Term Insurance products.
As other fellow commentators here have already pointed out limitations of term insurance, amongst all Term insurance generally has sum insurance restricted to a certain specified lower limit in case of critical ailments diagnosis or treatment (eg. Even if your term insurance is of say Rs.1 crore, critical ailment will have capping of say Rs.25 lacs which includes various ailments with varying sub-limits).
Thus, term insurance cannot completely take care of your liabilities in case of survival.
In such a situation, I would rather suggest to go for combo i.e. TERM (full coverage of your life risk which could even be greater than borrowings) + HLPP (to cover specific uncovered risk n at reduced amount). I this is wise call. I will like to invite comments of others on this.
Hello
I had taken an ICICI bank loan on my flat purchased in 2016. The bank person somehow added ICICI Home Protect insurance by saying me that it is one time premium. The premium is 73000 rs and when ever you repay/prepay the loan full amount will be given back to you. I trusted him but the mistake i did is I did not ask for any document related to policy terms and conditions. I somehow prepay the loan a few days back and when I went to get the refunds at ICICI prudential Insurance office the person processing the refund gave very casual reply that they will give only 30% back of full premium paid. Somewhere I felt cheated by ICICI bank. So guys beware of these people.
Hi Sumit,
Sorry to hear about your experience.
Bajaj Finserv added a Loan security policy with my Home Loan. For that policy they paid a single premium of around 3L. But I need to pay around 3.5K per month (For 10 years) to Bajaj. That EMI will go separately, and not included in home loan.
Home loan EMI and Insurance policy EMI will start in March. I just received policy document. This is a worthless policy for me, as I already have lot of policies. Also, it is very costly.
I do not want this policy. Do I have any options, or I am doomed?
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