Banks while lending housing loan will have a tie up with insurance companies, so that in case of any unfortunate happenings like the death of the borrower, automatically the insurance amount comes to the rescue of bank. Pls check up why such cushion was not available in that particular bank. You can talk to the bank people to reschedule the EMIs. If there were to be a guarantor, bank would proceed to recover the loan amount from the guarantor or else bank would auction the property and recover its dues and the remaining amount over and above the due would be given to legal heirs. In the alternative, if there is a ready buyer for the property, then the buyer would clear the bank loan on the property and he would pay the balance sale consideration to the legal heirs.