Does paying insurance premiums on time increase my CIBIL score?

No, regular premium payments are not reported to credit bureaus. They do not help build or increase your credit score directly.

Will my credit score drop if I stop paying my monthly insurance?

If it is a direct monthly premium, no. If it is a bank-funded EMI loan, yes, your score will drop significantly.

What is modal loading in term insurance?

It is an extra charge (usually 4-8%) added to your premium when you choose monthly or quarterly payments instead of annual ones.

Is GST still applicable on term insurance premiums?

No, the GST Council recently removed the 18% tax on term insurance, making it much more affordable for all Indian policyholders.

Can I cancel an EMI-based policy during the free-look period?

Yes, you can cancel within 30 days. The insurer refunds the premium, which must then be used to close the bank loan.

Why does my insurance show up as a personal loan on CIBIL?

This happens if you used a third-party funding platform. They pay the full year's premium and treat your EMIs as loan repayments.

Does Term Insurance on EMI Affect Your CIBIL Score?

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Buying Term Insurance on EMI: Does it affect your credit score?

Monthly payments for life cover might seem convenient, but if they are structured as loans, your CIBIL score could be at risk.

3 min read

OneAssure Team

April 13, 2026

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Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

The hidden loan in your insurance cart

You find the perfect ₹1 Crore term plan. The annual premium is ₹18,000. Suddenly, you see an option to pay just ₹1,600 per month. It looks easy. You click buy. But did you just buy insurance or take out a personal loan? Many young earners do not realize that monthly payments come in two very different flavors. One is a direct debit. The other is a bank-funded loan. If you choose the latter, you are effectively borrowing the annual premium from a bank to pay the insurer. This shows up on your credit report. It is no longer just a premium. It is debt.

Monthly premiums vs Bank-funded EMIs

When you pay a monthly premium directly to the insurance company, it is a simple contract. If you stop paying, the policy might lapse. Your credit score remains untouched. However, many digital platforms now offer Insurance Premium Funding. Here, a third-party bank or NBFC pays your full annual premium to the insurer upfront. You then pay the bank back in EMIs. On your CIBIL report, this appears as an Unsecured Personal Loan. If you are planning to apply for a home loan or a car loan soon, this extra 'debt' could lower your eligibility. It might even lead to a higher interest rate on your future big-ticket loans.

The CIBIL trap of credit card EMIs

Using a credit card to convert your premium into EMIs is another common move. This impacts your credit utilization ratio. Suppose your card limit is ₹1 Lakh. You put a ₹30,000 premium on EMI. Suddenly, 30% of your limit is blocked. High utilization can signal 'credit hungriness' to bureaus. Your score might dip by a few points. More importantly, missing even one payment is disastrous. A missed premium to an insurer just pauses your cover. A missed EMI to a bank is a default. It can slash 50 to 100 points off your CIBIL score in one go. Recovery takes years.

Hidden costs of the monthly route

Convenience has a price tag. Insurers call it Modal Loading. If you pay monthly, they often charge 4% to 8% extra compared to the annual rate. They do this to cover administrative costs and the loss of upfront investment income. There is also a major update you should know. The GST Council recently removed the 18% tax on term insurance premiums. This makes annual payments significantly cheaper than before. If you choose an EMI through a third party, look for hidden processing fees. Even 'No-Cost EMI' offers often have a hidden interest component that is adjusted against the discount provided by the insurer.

How your score affects your premium

It works both ways. While insurance usually does not build your credit, your credit score can now lower your premium. Indian insurers have started using risk-based pricing. If you have a CIBIL score above 750, you are seen as financially disciplined. Some companies offer a 5% to 10% discount on the base premium for such profiles. A healthy score tells the insurer you are less likely to let the policy lapse or engage in fraudulent claims. Checking with a distributor like OneAssure can help you identify which insurers reward your good credit history with lower rates.

Your fail-safe payment checklist

If you must choose monthly payments, do it the right way. Avoid third-party loans if possible. Stick to direct bank debits. Use this checklist to keep your credit score safe:

Set up an e-mandate or NACH directly from your savings account.
Ensure your account has sufficient balance at least two days before the debit date.
Avoid using credit card EMIs for premiums unless there is a genuine cash flow crunch.
Check your CIBIL report every six months to ensure no 'ghost' insurance loans are active.
Utilize the 30-day free look period. If you cancel, ensure the EMI tie-up is also formally closed with the bank.

Choosing the right payment mode is as vital as choosing the right cover. Protect your family with the policy, but protect your financial reputation by staying away from unnecessary insurance debt.