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Thinking About Term Life Insurance for Your Home Loan at 50+ Age? This Conversation Explains It Better Than Any Brochure

Recently, someone asked me a few questions about term life insurance in a specific situation. I’ve summarised our discussion below because many people have similar doubts, and the conversation highlights some useful general insights on how to think about life insurance.

Questions

I am a senior executive at an MNC, 58 years old, with an official retirement age of 65. I am purchasing an apartment worth ₹3 crore and taking a home loan of ₹2 crore, which the bank has approved with a 7-year tenure. The bank manager is insisting that I purchase a term life insurance policy linked to the home loan. My questions are:

  1. Is such home-loan-linked term insurance mandatory?

  2. Should I buy a term plan at this age, considering the high premium and the fact that my existing investments & assets are sufficient to cover the loan if something happens to me?

Answers

1. Is home-loan-linked term insurance mandatory?

Generally, it is not mandatory, and often not advisable to buy the bundled home-loan-linked insurance that banks push. Banks are not allowed to officially force you to buy insurance as a condition for sanctioning the home loan—especially when the property value already provides enough collateral.

Banks typically lend only up to 75–80% of the property value (LTV ratio). This ensures they remain over-collateralised, meaning they will always have a margin of safety even if property prices fall or the borrower defaults.

However, there are certain special cases where insurance may be insisted upon:

  • When the bank is under-collateralised, such as a composite loan or loan for home construction where the land value is very low and the construction cost is high.
    Example: borrowing ₹2 crore to build a large house on village land worth ₹10 lakh. Though disbursal happens in phases, the bank takes higher risk until the structure is completed.

In such situations, banks want protection in the event of the borrower’s early death, because recovery through legal channels is slow, expensive, and messy.

Unofficial pressure by bank managers

Even when it’s not officially required, bank managers may still push you to buy insurance. Reasons can include:

  • Their performance is judged by NPAs and loan book quality. A death claim paid by the insurer is simpler than pursuing legal recovery.

  • Some push bundled policies to meet cross-selling targets, especially if they feel you are keen on the loan or have limited bargaining power.

The bundled plans they sell are usually:

  • Single-premium

  • Reducing sum assured

  • Non-portable, and often expensive

These are generally worth avoiding.

If there is a genuine reason the bank insists on insurance, you can simply buy a regular term insurance policy and assign it to the bank. That is more transparent and cost-efficient.

2. Should you buy term life insurance at age 58?

The need for life insurance depends on two principles:

A. Protection of unfulfilled financial goals

If purchasing the apartment is a key family goal, and your existing investments & assets are already earmarked for other goals (children’s education, retirement, etc.), then the home loan becomes an unfulfilled goal.
In this case, you should take life insurance, because your family will inherit both the home and the loan.

B. Protection of future income

At 58, you still have 7 working years. If your unfortunate early demise would deprive your family of these future earnings, a term plan ensures income replacement.

However, if:

  • your new apartment is purely an investment, and

  • you already have enough assets to cover the loan and protect other goals,

then taking a term plan is optional.

Still, you may choose insurance purely to ensure that, whether you live or not, your family’s expected financial trajectory does not get disrupted. The existing investments & assets you’ve built over the years —and the ones you’re acquiring now— are meant for your family’s comfort and security. The last thing you’d want for them is to be forced into sacrificing one cherished asset just to save another because a debt needs to be repaid.

A philosophical but important note

Observe the bank’s behaviour: it is extremely protective of the money it lends. For the bank, your home is merely a recoverable asset. For you and your family, it is a dream, a goal, a source of security and comfort.

If the bank takes so many precautions to protect their financial interests, shouldn’t you take equal or greater precautions to protect what truly matters to your family?

Life insurance is not about fear—it’s about responsibility and ensuring continuity.


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