New Delhi, April 22 -- When Raju went to his bank for a home loan, they offered him a loan insurance. The banker's pitch was simple: If something happens to you, the insurance company would take care of your loan repayments, and your family wouldn't have to deal with loan burdens.

Here's how the bank manager put it: Pay a one-time upfront premium that will insure the loan for the entire tenure. If you feel the amount is large, don't worry. We will pay the insurance premium, and the balance will be added as an additional loan. Borrowers are also given the option of a periodic premium, but if they fail to pay it on time, there is a risk that the policy can lapse.

To sweeten the deal, the bank offered a discount of 5 basis points on the ho...