The Insurance Regulatory and Development Authority (Irda) asked insurance companies to add the loan repayment benefit to critical illness cover to make the home insurance product a complete collateral. The insurance regulator had recently rejected home insurance packages filed by two insurers on this ground.

"Irda has said the product should be designed in a way that it is a collateral. The regulator's concern is that in case of critical illness only the cost of treatment is paid while there are chances of loan default," said a senior executive of a large general insurance company. At present, two companies, ICICI Lombard and HDFC Ergo, offer comprehensive home insurance packages that insure the home, pay off the EMIs in case of a job loss and provide cover for critical illnesses.

But the critical illness cover does not address paying off the EMIs. "In case of permanent total disability, which would be loss of two arms or legs, the loan will be paid by the company," said Amit Bhandari vice-president-health underwriting and products, ICICI Lombard.

There are certain illnesses such as cancer, heart attack, stroke, paralysis, heart valve replacement surgery and kidney failure, which are not part of an individual's health insurance policy and are covered under a critical illness policy. The home insurance part of the policy covers the loss to the structure and goods at home. The jobloss policy ensures that the loan EMIs are paid off.

Also, the total sum insured is paid to the insured in case of death or permanent disability caused by an accident. "We want any benefit of an insurance product to go to insured and not to the financial institution. Banks and other financial institutions have their own surplus. Any nomination should not go to FIs and there should be other ways of securitisation," said a senior Irda official.