Inadequate, mis-sold covers mar India's festive homebuying boom

Both Irdai and National Housing Bank say loan insurance is voluntary, but lenders continue coercive practices

- Khyati Dharamsi

India's festive season has once again fuelled a surge in homebuying, but behind the celebration lies a quiet financial risk.

As lenders bundle insurance policies with housing loans, thousands of borrowers are discovering that the covers they were nudged to buy are either irrelevant, inadequate, or missold-leaving families exposed when tragedy strikes.

Property registrations jumped 32% in September from a year earlier, with Mumbai alone accounting for nearly 12,000 home sales. The festive period typically drives a surge in housing demand, and this year was no different. About 80% of these purchases were financed through home loans, data from Knight Frank show. That's often when borrowers discover they've been signed up for an insurance policy pushed by their lenderone that may neither fit their financial needs nor offer adequate protection when it matters most.

Insuring a borrower's life or property is generally considered good practice, especially for long-term liabilities such as home loans. But in many cases, lenders bundle or missell insurance products that are irrelevant, insufficient, or poorly matched to the loan's structure and repayment obligations. Borrowers often accept these policies without full understanding, assuming they are mandatory. Regulators don't require such covers, yet the practice persists across banks and housing finance companies, leaving many homeowners exposed to financial risks they thought were covered.

The National Housing Bank's best practices circular is explicit on this point: "Companies should not ... force a customer to either opt for products of insurance company or link sale of such products to banking product ... purchase of insurance is purely voluntary and not linked to availment of any other facility from the housing finance company."