Home loan borrowers in India can either take loan‑linked home loan insurance or buy an independent term insurance policy to protect their families. Both can clear the outstanding loan on death, but they differ sharply in flexibility and portability and over a 15–30‑year tenure, a standalone term plan (including LIC term plans) almost always gives better long‑term control and value.
Flexibility and Portability: Tied‑to‑Loan Insurance vs Independent Term Cover
Home loan insurance (HLPP / mortgage redemption) is designed primarily to protect the lender’s loan exposure, while term insurance is designed to protect your family’s financial life. The choice depends on whether you want a loan‑centric cover that reduces with EMIs or a person‑centric cover that stays with you even if you refinance, prepay or close the loan.
How home loan insurance works (tied to the loan and lender)
Home loan insurance often sold as a Home Loan Protection Plan (HLPP) or mortgage redemption cover is typically offered by banks and housing finance companies at the time of loan disbursal.
Structure and coverage
- Decreasing cover: The sum assured starts roughly equal to your sanctioned loan amount and then reduces each year broadly in line with the expected outstanding balance under the EMI schedule.
- Single premium, loan‑linked: Most HLPPs are single‑premium group term covers; the premium is either paid upfront or financed by adding it to the loan, increasing your EMI.
- Bank as primary beneficiary: If the borrower dies during the term, the insurer pays the outstanding loan amount directly to the lender, closing or reducing the home loan; only if a structure allows surplus (uncommon in standard HLPP) might the family receive anything extra.
LIC’s role: group GMRA, not retail HLPP
LIC does not typically sell retail HLPP directly to individual customers today; instead it mainly offers Group Mortgage Redemption Assurance (GMRA) Scheme (UIN 512N219V01) to banks and housing finance companies.
Key GMRA characteristics:
- Group term, single premium, decreasing cover equal to loan outstanding at the start of each year.
- Available for borrowers 18–60 years with maximum maturity age 65; minimum term 3 years, maximum sum assured ₹1 crore.
- Claim is paid to the lending institution to clear outstanding dues, with premium eligible for tax benefits and partial refund possible if the loan is prepaid.
Older individual Mortgage Redemption Assurance Plan No. 52 is now in LIC’s withdrawn‑plans list, so LIC’s main home‑loan‑linked solution is GMRA offered via lenders, not a retail HLPP you buy yourself.
Flexibility and portability limitations
Because HLPP/GMRA is attached to a specific loan account, its flexibility is limited:
- Refinancing / balance transfer: If you shift your home loan to another bank or HFC, the existing HLPP/GMRA cover generally cannot be ported; you may need a new cover with the new lender.
- Prepayment / foreclosure: Prepaying the loan doesn’t automatically give you equivalent cover elsewhere; you may get a partial refund of unexpired premium as per formula, but the cover ends with that loan.
- Coverage follows loan, not life: Because the sum assured keeps reducing, HLPP efficiently protects the bank’s risk but does not maintain a constant safety net for your family’s other needs.
HLPP/GMRA is simple and ensures the home loan is cleared, but it is fundamentally loan‑centric, lender‑first and weak on portability.
How independent term insurance works (portable and family‑centric)
A term insurance policy is a pure life cover you buy independently from a life insurer, with a fixed sum assured and chosen policy term, unrelated to any particular loan. To protect a home loan, you typically select a sum assured equal to or higher than your outstanding and future loan needs, and a term matching or exceeding the loan tenure.
Structure and coverage
- Level sum assured: The cover (say ₹50 lakh, ₹1 crore, etc.) stays constant throughout the policy term, not decreasing each year with EMIs.
- Separate from EMI: Premiums are paid directly to the insurer (monthly/annual/etc.), not clubbed into the loan, so you can change or prepay the loan without affecting the policy.
- Family as nominee: On death, the insurer pays the entire sum assured to your nominee (family), who then decides how much to use to clear the home loan and how much to retain for other needs.
Flexibility and portability strengths
Because term insurance is person‑centric, its flexibility and portability are high:
- Loan transfers and refinancing: You can refinance or balance‑transfer your home loan any number of times; your term policy remains intact because it’s not tied to the lender.
- Prepayment and foreclosure: If you completely prepay your housing loan, your term cover still continues and now protects your family for other goals and contingencies.
- Broad protection beyond the loan: The same term cover can support EMIs plus other liabilities and expenses such as children’s education, lifestyle costs, and existing personal loans, making it a more holistic safety net.
You can also add riders like critical illness, accidental death, total permanent disability or waiver of premium, which are rare or absent in standard HLPP products.
LIC term plans for home‑loan protection
Borrowers who prefer LIC can use any of LIC’s individual Term Assurance Plans as listed on LIC’s term plans page to protect their home loan:
- LIC term products (such as New Tech Term or newer variants like Bima Kavach) generally allow entry up to around age 65, with maximum maturity ages around 75–80, making them suitable for many home‑loan borrowers in the 25–50 age band.
- By choosing a sum assured at least equal to the home loan (often higher) and tenure aligned to or longer than the EMI schedule, a LIC term plan can fully cover the mortgage while also protecting broader family needs.
This gives you the brand comfort of LIC with the structural benefits of independent term insurance.
Cost and value: why term usually wins
On a like‑for‑like basis, independent term policies are generally more cost‑effective and deliver better long‑term value than home loan insurance.
- Premium pattern:
- Coverage longevity:
Independent comparisons from banks and brokerage portals consistently conclude that term insurance offers broader protection, more flexibility and better rupee‑value than loan‑linked insurance for most borrowers.
When might home loan insurance still make sense?
Despite its limits, home loan insurance or LIC GMRA‑type schemes can still be useful in some situations:
- Quick, loan‑specific protection: For borrowers who want a simple “loan clears automatically” solution and are less concerned about broader family protection, HLPP is straightforward.
- Group underwriting advantages: Some borrowers who struggle to qualify for large individual term covers might still access group mortgage cover via the lender at simpler underwriting terms.
- Bank‑bundled deals: Certain banks may bundle HLPP at promotional pricing; if the premium is genuinely low and you already have an adequate separate term plan, it can be an extra safety layer focused solely on the house.
However, these are exceptions, not the norm. For most financially aware borrowers, a robust individual term plan (from LIC or any strong life insurer) remains the recommended core protection.
Practical takeaway: which is better for flexibility and portability?
From a flexibility and portability viewpoint, independent term insurance is usually the better choice to protect your home loan:
- It stays with you, not with the bank or a specific loan account.
- It allows unrestricted refinancing, prepayment and foreclosure without losing or duplicating cover.
- It protects your family’s entire financial situation, not just the mortgage, and pays the full sum assured directly to them.
LIC plays both roles in this ecosystem group GMRA for lenders and individual term plans for retail borrowers but for most end‑users, the LIC term route (or any equivalent term plan) is usually the smarter, more portable way to secure both the home and the household.
Choosing between home loan insurance and term insurance depends on your loan, dependants, and overall protection needs. For personalised guidance and LIC‑related queries, speak with a licensed advisor at +91‑7832933580.
This information is educational only, not financial advice. Policy features, eligibility, premiums, and tax rules may change as per insurer and IRDAI regulations – always check the latest official brochures and consult qualified professionals before making decisions
