The National Housing Bank (NHB) has warned housing finance companies (HFCs) against mis-selling insurance policies bundled with home loans. It has now made it mandatory to get separate, clear customer consent and offer at least two insurance provider options. Following supervisory inspections, the NHB found several issues—including policies with shorter tenures than home loans and unclear disclosure of premium and terms.
Main Story:
Home Loan, Hidden Insurance: What’s Going On?
Buying a home is a big step, but for many borrowers, there’s been a hidden surprise—insurance policies tied to home loans without clear information. The National Housing Bank (NHB) has taken a strong stance against this.
In two recent communications (December 2024 and March 2025), NHB told housing finance companies (HFCs) to stop these practices. It said companies must:
- Get clear, written consent from the borrower
- Offer at least two insurance provider options
- Clearly mention policy terms, premium amounts, and tenure
What Did NHB Find?
During inspections, NHB found that:
- Borrowers were often not told they were buying insurance
- The insurance period was sometimes shorter than the loan term
- Multiple insurance types were being sold to the same borrower
- There were no board-approved policies for selling insurance
- Even when customers agreed, the terms were not clearly explained
Some of the insurance types bundled with loans included:
- Term life insurance
- Property/building insurance
- Critical illness insurance
- Hospitalisation benefits
- Disability cover
In some cases, these policies had little or no connection to the actual home loan being taken.
Regulatory Concerns
In a January meeting, NHB questioned why insurance income was forming a large part of net interest income for many HFCs. It raised concerns that companies were focusing more on commissions than on customer protection.
The issue was serious enough to be discussed at both the RBI’s inter-regulatory forum and the IRDAI’s early warning group, based on NHB’s study on mis-selling in the housing sector.
What Happens Now?
NHB has now made it clear:
- Mis-selling must stop
- HFCs need proper insurance sales policies approved by their boards
- Borrowers must get fair options and full clarity
This move is aimed at protecting customers, increasing transparency, and ensuring that insurance is truly for coverage—not just for boosting company profits.
