If a bank is asking you to repay a loan after your father’s death despite the loan being insured, it is important to understand the legal framework governing such cases. Most loans are covered under credit life insurance policies, where the insurer settles the outstanding loan amount in case of the borrower’s death. However, under the Indian Contract Act, 1872 (Section 73), the bank can demand repayment from legal heirs if the insurance claim is rejected due to non-disclosure, policy lapse, or exclusion clauses.
The Transfer of Property Act, 1882 also recognises that liability attached to secured loans like home loans can be enforced against the mortgaged property irrespective of death.
In LIC of India v. Consumer Education & Research Centre (1995), the Supreme Court held that insurance contracts must be interpreted to protect the insured, but the duty of utmost good faith lies on the borrower to disclose all material facts.
If your father did not disclose pre-existing illnesses or if premiums were not paid regularly, the insurer may repudiate the claim, and in such cases, the bank will recover dues from legal heirs or securities.
However, as per Article 300A of the Constitution of India, no person can be deprived of property except by authority of law, which means the bank cannot arbitrarily demand repayment if the insurance is valid.
Legal heirs should first demand a copy of the insurance policy and claim settlement status. If wrongly denied, you can file a complaint before the Insurance Ombudsman under the Insurance Ombudsman Rules, 2017 or approach the Consumer Forum under the Consumer Protection Act, 2019.
In cases of genuine coverage, courts have held banks liable to adjust loan liability against insurance. Thus, repayment depends on the insurer’s acceptance of the claim and compliance with policy terms.
Get Legal Help from NoBroker if Bank Seeks Loan Repayment Despite Insurance
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Why is the Bank Asking Us to Repay a Loan after My Father Death if it was Insured?
priya
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2025-09-21T11:47:00+00:00 2025-09-21T11:47:02+00:00Comment
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