For many borrowers, the most difficult moment in the home loan process comes at the very end. After the loan is approved, the paperwork is ready, and just before the money is disbursed, the bank tells them that the borrowers must buy an insurance policy. This is often presented as mandatory, and the insurance is described as a necessity for their protection. Sometimes it is also explained as a condition for loan approval. Most people agree to it because they fear that the loan may be delayed or canceled.
But the truth is simple. Home loan insurance is not mandatory. No regulatory body in India, including RBI or IRDAI, forces customers to buy any insurance plan for loan approval. No bank can legally reject or delay your home loan if you refuse to buy their policy.
So why is this pressure so common? The answer lies in how profitable these policies are for banks.
Read More –Getting Insurance Made Easy – Get ₹2 Lakh Cover for Just ₹20, Read Details
Data cited in a One Finance report titled ‘The Mis-Selling Menace’ shows that banks earned over Rs 21,000 crore in commissions from financial products, including insurance, last year. Some banks earn up to 65 per cent of the first year’s premium as income. With such high commissions, selling insurance at the time of home loan disbursement has become an internal revenue strategy rather than a customer requirement.
The problem is also visible in policy behaviour. In India, about 49 per cent of life insurance policies lapse before the fifth year. A large part of the payouts to policyholders are not maturity benefits, but rather refunds for policies surrendered or closed. Many of these policies were bought under duress or without proper explanation, often during financial transactions like home loan approval.
The financial impact for home loan borrowers is also direct. Many banks add insurance premiums to the loan amount, which increases the EMI. If the borrower repays the home loan early, the insurance coverage often ends immediately and cannot be transferred or continued. Most of the money paid is then wasted because the surrender value is very low.
Also Read –Royal Enfield Himalayan 450 Review – More Powerful, More Refined, and Adventure-Ready
Insurance expert Mahavir Chopra says the real problem is not the insurance products themselves, but the way banks push them on borrowers. He believes that salespeople should be judged by the same standards as financial planners and not treated like retail counters trying to move stock.
“If banks are allowed to sell financial products, they should be held accountable like professional financial planners. This report clearly reveals how some banks, driven by commission-based considerations, are engaging in practices that can be described as nothing short of financial fraud,” says Mahavir Chopra.
Know your rights as a borrower
The rules are clear for borrowers. You have every right to refuse home loan insurance. Banks cannot make it mandatory as a condition of loan approval. They cannot force you to buy from a particular insurer. And they cannot tie your creditworthiness to the purchase of a policy.
Consumer advisors say the easiest way to stop this pressure is to ask the bank to put this condition in writing. In most cases, the conversation ends there because there is no such rule.
A home loan is already a long-term financial commitment. Adding an unnecessary insurance plan to it only adds to the burden. Knowing your rights can help you avoid unnecessary costs and keep your loan truly affordable.