Demystifying home loan insurance for borrowers

It’s no wonder that home loan borrowing in India is growing at a 14% pace, as per official data. Owning a home is one of the most sought-after dreams in India, especially for the middle class income group. But what usually follows this dream is taking a loan to fulfill it.

Most homebuyers in India are all too familiar with the usual drill that follows once you decide a buy a home. Navigating the sky-high property prices has most of them knocking the doors at banks for a loan. And once that happens, they are usually handed the bundled insurance deal along with the loan.

While there’s no doubt that home loan insurance is a valuable product which protects homebuyers’ largest liability if the borrower is no longer around, the way it is sold is often opaque and rigid.

Despite its importance, the product has remained poorly understood, rigidly structured and largely sold as an afterthought, bundled with loans, explained inadequately, and rarely revisited once signed.

As a result, many borrowers end up paying far more than necessary for protection they neither chose consciously nor fully understood. This is precisely where the need for a more affordable and transparent alternative needs to begin.

The need for rethink

Historically, home loan insurance in India has been offered offline, often at the loan sanction stage, and sometimes even at disbursement stage. Borrowers are typically presented with a single option, with little clarity on pricing, premium structure or long-term cost implications. Since the insurance is bundled with the loan, customers rarely compare alternatives or question whether the product is suited to their needs.

The result is opacity on two fronts. First, premiums are significantly higher, partly due to distribution costs and the inclusion of GST.

Second, these plans often lack flexibility. Borrowers remain locked into long-term premium commitments even if the loan is prepaid or foreclosed early. In many cases, claim payouts are structured primarily to settle the lender’s outstanding amount, leaving families with limited financial autonomy at a time of crisis.

In a market where borrowers have become increasingly cost-conscious and choice-driven, this model feels out of step.

Modern solutions

In today’s day and age, any financial product needs to be affordable and flexible with the policyholder firmly in control. Especially when it comes to long-tenure liabilities such as home loans, this is even more imperative.

That is because even small differences in prices compound significantly over time. Borrowers can look for premiums that reflect actual risk rather than a bundled product.

And most importantly, they want clarity on how much they are paying, what they are covered for, and who ultimately receives the claim benefit. This shift in expectations has opened the door for a more transparent, consumer-first approach to home loan protection.

Online home loan insurance addresses many of the structural limitations of traditional covers.

By moving to a direct-to-consumer model, these plans eliminate multiple layers of distribution cost. The absence of GST further reduces the overall premium outgo, making protection significantly more affordable over long loan tenures.

To illustrate the difference, for a 30-year-old borrower with a ₹1 crore home loan over 20 years, traditional offline home loan insurance can result in a total premium outgo of nearly ₹6 lakh. An online home loan insurance plan for the same cover can cost close to ₹1.6 lakh over the same period. This translates into savings of up to 72%.

Beyond cost, flexibility is also key differentiator between online and offline plans. Online plans allow borrowers to align coverage with their outstanding loan, adjust protection as liabilities change, and foreclose loans without worrying about sunk insurance costs.

Awareness gap

Despite these advantages, awareness around online home loan insurance remains low.

Most home-buyers are unaware that they can buy home loan insurance independently instead of going for the plan offered by their lender. Others assume that life insurance automatically covers loan liabilities, without realising that mismatches in coverage or timing can leave families exposed.

This lack of awareness has meant that a large section of borrowers continue to overpay for protection or remain under-protected altogether.

(The writer is Chief Business Officer, Life Insurance, Policybazaar.com)

Published on February 16, 2026