Short answer: Most households need two core covers before anything else: term life insurance if anyone depends on your income, and health insurance for hospital bills. Loan protection (credit life) cover pays off a specific loan if the borrower dies or, in some plans, is disabled; it can be useful, but it should be optional, its cost must be shown in the loan’s Key Fact Statement, and a good term plan often covers the same risk more cheaply.
Last updated: 13 October 2026.
This hub explains the main types of insurance, how they connect with borrowing, and where to go for help if a claim or sale goes wrong.
The core covers
| Type | What it pays for | Who needs it |
|---|---|---|
| Term life insurance | A lump sum to your nominee if you die during the policy term | Anyone with dependants or large loans |
| Health insurance | Hospitalisation and related medical costs | Everyone, including those with employer cover |
| Personal accident | Death or disability from an accident | People in risky jobs or who commute a lot |
| Home insurance | Damage to the building and contents | Home owners, and tenants for contents |
| Loan protection (credit life) | The outstanding balance of a specific loan | Borrowers without enough term cover |
Read more in term insurance benefits and pitfalls. For low-cost government options, including covers you can arrange for domestic workers, see insurance through government schemes and our government schemes hub. Newer covers exist too; we look at whether you need personal cyber insurance for online fraud risk.
How much life cover do you need?
A common starting point is enough cover to repay all loans and replace several years of income for your family. A simple method:
- Add up outstanding loans (home, car, personal).
- Add the number of years of household expenses your family would need covered.
- Add big future goals, such as children’s education.
- Subtract existing savings and investments you would leave behind.
Worked example
Ravi (an illustrative example) earns ₹12,00,000 a year. He owes ₹30,00,000 on a home loan and ₹3,00,000 on a personal loan. His family would need about ₹6,00,000 a year for 10 years (₹60,00,000), plus ₹15,00,000 for education. He has ₹8,00,000 in savings. Cover needed: ₹30,00,000 + ₹3,00,000 + ₹60,00,000 + ₹15,00,000 − ₹8,00,000 = about ₹1 crore.
Loan protection insurance: what to know
When you take a home, personal or business loan, the lender may offer a group credit-protection policy; with a home loan, the amount at stake is large enough to compare it carefully with a term plan. Points to check:
- Is it optional? Ask in writing. If you already have adequate term cover, assigning or relying on that may be enough.
- Is the premium financed? A single premium added to the loan amount attracts interest for the full tenure. On a ₹5,00,000 loan, a ₹10,000 premium added to the principal costs you interest on ₹5,10,000.
- Is it in the KFS? Under RBI’s Key Facts Statement rules, charges a lender collects for third parties such as insurance are part of the APR and must be disclosed, and fees not mentioned in the KFS cannot be charged. Our APR and KFS guide explains how to read it.
- Does the cover reduce? Many credit-life policies shrink as the loan is repaid. A level term plan keeps the same sum assured.
- What happens if you prepay or transfer the loan? Check whether any unused premium is refunded.
For what happens to a loan without cover, read what happens to loans if the borrower dies.
Costs, GST and tax in 2026
- GST: from 22 September 2025, premiums on individual life and health policies (such as term plans and family floater health plans) are exempt from GST. Group policies, which include many employer and lender-arranged covers, were not part of that exemption.
- Life insurance premium deduction: now under section 123 of the Income-tax Act, 2025, within the overall ₹1,50,000 limit, and only in the old tax regime.
- Health insurance deduction: also available only in the old regime. Check current section numbers and limits in our income tax hub before filing.
See also saving tax with life insurance premiums.
When things go wrong
Most new life and health policies come with a free-look period during which you can return a policy you were mis-sold. If a claim or complaint is not resolved by the insurer, you can register it on IRDAI’s Bima Bharosa portal. It warns that it never asks complainants for payment, so treat any such request as fraud.
A health policy also reduces how often you need a medical loan, and an emergency fund covers the deductibles and waiting periods insurance leaves behind.
Already insured and still short of funds? Compare personal loan offers from RBI-regulated lenders, with all charges shown in the KFS.
Frequently asked questions
Is loan protection insurance mandatory?
Ask the lender to confirm in writing. Many lenders offer it as optional, and an existing term plan with enough cover can protect your family against the same risk.
Is term insurance better than loan protection cover?
Often, because the sum assured stays level and goes to your nominee to use as needed. Loan cover pays only the lender and usually reduces as the loan is repaid.
Is there GST on health insurance in 2026?
Individual health and life insurance premiums have been exempt from GST since 22 September 2025. Group policies were not covered by that exemption.
Can I claim tax benefits on insurance under the new regime?
Generally no. Deductions for life and health premiums apply only if you choose the old tax regime.
Where do I complain about an insurance claim?
First to the insurer’s grievance officer. If unresolved, register the complaint on IRDAI’s Bima Bharosa portal, and you can approach the Insurance Ombudsman.
Sources
- RBI: Key Facts Statement for Loans and Advances (15 April 2024)
- Income Tax Department: Section 123, Income-tax Act, 2025
- IRDAI: Bima Bharosa grievance portal
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.