When a loan seeker is issued the loan, most banks/issuers would ask the customer to also buy an insurance policy. This policy is to cover the bank’s risk of non-repayment of the loan dues in case of death of the primary loan seeker. These policies are called Loan Protection Plans and are typically a Group Term Plan that the insurance company has floated for the bank in question.
The advantage for the loan seeker is that his family is not under stress in the unfortunate event of a death before the loan tenure is up. The Loan Protection Insurance Policy’s sum assured is typically equal to the loan amount and tenure is equal to the loan tenure.