A home loan or business loan gives you financial growth - but it also adds risk.
If something happens to you, that liability can quickly turn into a heavy burden for your family.
That’s where term insurance for loans helps - it ensures your loved ones never have to
worry about
repaying your debts.
Most top insurers offer loan protection term plans that cover all kinds of
liabilities - from mortgages to education loans - ensuring full repayment even in your absence.
This guide explains how these plans work, how much cover you need, and why pairing your loans with term
insurance is one of the smartest financial moves you can make.
Why You Should Cover Loans With Term Insurance
- Protect Your Family: Prevent them from inheriting unpaid debts.
- Safeguard Assets: Your home, car, or business stays within the family.
- Peace of Mind: Lenders are repaid directly from insurance payout.
- Tax Benefits: Premiums eligible under 80C & 10(10D).
- Affordable: High coverage at low cost (₹1 Cr+ from ₹800/month).
Types Of Loans You Can Cover
| Loan Type |
Example |
Ideal Policy Term |
| Home Loan |
Mortgage / Housing Loan |
Same as loan tenure (15-30 yrs) |
| Education Loan |
Student loan for children |
10-20 years |
| Business Loan |
MSME / Commercial Loans |
10-25 years |
| Vehicle Loan |
Car / Commercial Vehicle |
5-10 years |
| Personal Loan |
Short-term liabilities |
3-5 years |
How Term Insurance For Loans Works
- You buy a term plan equal to your outstanding loan amount.
- In case of your death during the policy period, the sum assured is paid to your
family (or lender if
assigned).
- The loan gets cleared, and the family keeps remaining funds (if any).
Example:
You have a ₹50 lakh home loan and buy a ₹50 lakh term plan for 20 years. If you pass away in year 10, the
insurer pays ₹50 lakh - family clears the loan, and keeps ownership of the house debt-free.
Fixed Cover Vs Decreasing Cover
| Type |
Description |
Ideal For |
| Fixed Cover Term Plan |
Sum assured remains constant |
Multiple or long-term loans |
| Decreasing Cover Term Plan |
Coverage reduces yearly as loan balance drops |
Single home or personal loan |
Sample Premium Comparison
| Age |
Coverage |
Term |
Annual Premium (₹) |
| 30 |
₹50L |
20 yrs |
₹6,800 |
| 35 |
₹50L |
15 yrs |
₹7,900 |
| 40 |
₹50L |
15 yrs |
₹9,200 |
| 45 |
₹50L |
10 yrs |
₹10,800 |
(Indicative, based on non-smoker rates.)
Best Term Insurance Plans For Loans
| Insurer |
Product |
Key Benefit |
| HDFC Life |
Click 2 Protect Super |
Fixed & decreasing cover - mortgage protection + whole life |
| ICICI Prudential |
iProtect Smart |
Loan-linked cover - optional CI & ADB riders |
| Tata AIA |
Sampoorna Raksha Supreme |
Custom term matching loan tenure - flexible payout modes |
| SBI Life |
eShield Next |
Affordable long-term EMI protection - simple digital issue |
| Max Life |
Smart Secure Plus |
Dual cover (loan + income protection) - TROP option available |
How Much Cover Do You Need?
Follow this rule:
Loan Amount + 5 Years of Income + Education/Dependents Cost = Ideal Term Cover.
Example:
Home loan ₹50L + annual income ₹10L × 5 years = ₹1 Cr total coverage.
Local Insights
- % of home loan holders with term insurance: 46%.
- Avg. loan amount covered: ₹35L.
- Most insured loan type: home loans.
- Top insurers issuing loan-linked covers: HDFC Life, ICICI Prudential.
Assigning Term Insurance To Lender (Optional)
- You can assign your policy to your bank/lender as collateral.
- On claim, insurer pays lender first, remaining to nominee.
- Recommended for large home or business loans.
- Can be revoked once loan is paid off.
Benefits For Business Owners
- Protect business loans, equipment finance, or partner liabilities.
- Use policy as Key Person Insurance to secure operations.
- Maintain business credit rating during transition.
Tax Benefits
- Section 80C: Premium deduction up to ₹1.5 lakh/year.
- Section 10(10D): Death benefit fully tax-free.
- Section 80D: Additional benefit for health riders.
Common Mistakes To Avoid
- Buying too little cover (less than outstanding loan).
- Not matching policy term with loan tenure.
- Forgetting to update loan repayments in policy planning.
- Not reassigning policy after paying off loan.
- Not informing nominee about claim procedure.
FAQs
Can I use term insurance to cover a home loan?
Yes, term insurance is ideal for home or mortgage protection.
What happens if I pay off the loan early?
You can keep the policy for family protection or reduce coverage at renewal.
Is separate term insurance better than bank’s loan cover?
Yes - bank-linked covers are costly and non-transferable.
What’s a decreasing cover plan?
It reduces annually as your loan balance drops - cheaper than fixed cover.
Can I cover multiple loans with one policy?
Yes, choose a sum assured equal to total outstanding debt.
Do banks mandate life cover for loans?
Not legally, but strongly recommended for large home loans.
Can I assign my term plan to the lender?
Yes, via collateral assignment - easy to revoke post repayment.
Is the payout made to the bank directly?
Only if you’ve assigned the policy; otherwise, it goes to nominee.
Can I include my spouse as joint insured for a joint loan?
Yes, joint term plans are perfect for shared liabilities.
Can self-employed people cover business loans?
Yes, using business or personal term plans.
Is the claim taxable if used for loan repayment?
No, all death benefits are tax-free.
Should I cancel the plan after loan ends?
No - keep it as pure family cover after payoff.
What if I refinance or switch banks?
Simply update lender information; policy remains valid.
Do I need to take new policy for every loan?
Not necessary - one large plan can cover multiple liabilities.
Which plan type is best for loans?
Decreasing term plan for single loan; fixed plan for mixed or future
debts.
Customer Reviews
- “Covered my ₹50L home loan - peace of mind for my family.” - Amit Joshi,
Pune
- “Bank’s policy was 2× costlier - PolicyBachat saved me a lot.” - Ritika Menon,
Delhi
- “Easy digital assignment to my lender.” - Arun Nair, Kochi
- “Perfect for my business loan protection.” - Karthik Reddy, Hyderabad
- “Transparent breakdown between fixed and decreasing plans.” - Neha Sinha,
Mumbai
- “Glad I secured my house - no risk for my kids now.” - Vivek Anand,
Bengaluru
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