When you apply for a personal loan in India, one of the common questions is whether insurance is compulsory. The short and clear answer is No – insurance is not mandatory for a personal loan in India.
There is no law or Reserve Bank of India (RBI) rule that says you must buy insurance while taking a personal loan. Some banks and lenders may suggest or even insist on it, but as a borrower, you have the right to refuse.
Why Do Lenders Offer Insurance?
Even though it is not compulsory, many lenders still recommend personal loan insurance. The reasons are:
It protects the lender in case the borrower is unable to repay the loan due to death, job loss, or serious illness.
It gives extra earnings to the bank as they also earn commission on the insurance policy.
It makes the loan look safer for both the bank and the borrower.
Should You Take Loan Insurance?
Insurance is optional, but in some situations, it can be useful:
It helps your family if something happens to you, as the insurance will cover the outstanding loan.
It prevents your credit score from getting affected if you are unable to repay due to an emergency.
It gives peace of mind for long-term or high-value loans.
However, you may not need it if:
You already have a good life or health insurance policy.
The loan amount is small or for a short duration.
The insurance premium is too costly compared to the benefit.
What If the Bank Forces You?
Sometimes banks try to make insurance look like a “must-have” condition for loan approval. If this happens, here’s what you can do:
- Say no politely but firmly – remind them it is optional.
- Ask for written proof if they say it is compulsory.
- Show your own insurance policy if you already have coverage.
- File a complaint with the bank’s grievance team if the pressure continues.
- Approach the RBI Ombudsman if the issue is not solved within 30 days.
Final Thoughts
Insurance is not compulsory for a personal loan in India.
It is completely your choice whether you want to take it or not.
While it provides some security, you should decide based on your financial situation and existing insurance cover.
Always remember: A lender cannot deny you a personal loan just because you don’t want insurance.
