If you are forced into taking a life insurance policy with a home loan and the bank or institution insists on one, you can tell them that you are well informed and one is not permitted to bundle financial products together.
Probably, one best way out would also be to get the matter in writing, which could eventually pose problems for the financial institution, should you decide to take up the matter. In fact, they may simply not give anything in writing. Also read Fixed or floating home loan? Which is better?
Of course, it's always beneficial
It's always sensible to take a life insurance policy when taking a home loan, simply because your family can pay back the home loan, should anything happen to you, through the insurance proceeds. The above facts were merely to ensure that you are not forced into taking a financial product along with a home loan.
Most housing finance companies or banks expect borrowers to provide a security against their loans. The security provided usually is the asset - the house itself. Hence, there's no reason why one should provide another security in the forms of a life insurance policy.
How much life insurance you need will depends on your loan amount. However, a few insurance companies do offer insurance policies that cover you for the home loan amount only. If you take a life insurance policy yourself, it's suggested that you cover the loan and beyond that so as to provide an adequate amount for your family to sustain.