Loan Against Insurance Policy: Features & Benefits

Loan Against an Insurance Policy: Is It a Good Idea?

Aakash Jain Posted on December 15, 2025

Key Features and Benefits

Here is why using a loan against life insurance policy can be a smart and convenient financial option for you:

High Loan Amounts Available

You can access significant funds by taking a loan against insurance policy on your endowment or unit-linked insurance plans.

Funding During Lock-in Period

You may get a loan even if your policy is still under the lock-in period, helping you meet immediate financial needs.

Keep Your Insurance Coverage Intact

A loan on LIC policy lets you secure funds without surrendering your policy, so your insurance benefits remain protected.

Eligibility Criteria for a Loan Against Life Insurance Policy

Here is what you need to qualify for a loan against an insurance policy:

You should be within the eligible age range set by the lender
Your insurance policy must have a minimum surrender value to support the loan amount
The policy must be active with all premium payments up to date
Loans against life insurance policy are available only on policies with a cash or surrender value
You must hold the policy with an approved insurer to apply for the loan
Both salaried and self-employed individuals can apply for a loan against LIC policy
The policy must have been active for a minimum period to build sufficient value

Documents Required to Apply for a Loan Against Life Insurance Policy

Here is the list of essential documents you need to submit for a smooth loan application process:

A recent passport-sized photograph to confirm your identity
Valid proof of identity such as Aadhaar card, passport, or voter ID
Proof of your current address through documents like utility bills or passport
Your insurance policy document to verify the loan against an LIC policy
Bank account proof, such as a recent bank statement or a cancelled cheque
PAN card to complete financial verification
Any additional documents as requested by the lender to support your loan application

Personal Loan vs Loan Against Life Insurance Policy

Choosing the right type of loan can save you time and money while meeting your financial needs effectively. Here is a clear comparison between a personal loan and a loan against an LIC policy to help you decide:

Parameter	Personal Loan	Loan Against Life Insurance Policy
Interest Rate	Higher	Lower
Credit Check	Mandatory	Not required
Processing Time	Longer	Faster
Collateral	Usually required	Not required (policy acts as collateral)
Documentation	Extensive	Minimal
Repayment Terms	Rigid	Flexible
Chances of Rejection	Higher	Lower
Loan Amount	Based on income and credit	Based on policy surrender value
Impact on Credit Score	Affects credit score	No impact if repaid on time
Eligibility	Requires good credit history	Requires active insurance policy

Parameter

Personal Loan

Loan Against Life Insurance Policy

Interest Rate

Higher

Lower

Credit Check

Mandatory

Not required

Processing Time

Longer

Faster

Collateral

Usually required

Not required (policy acts as collateral)

Documentation

Extensive

Minimal

Repayment Terms

Rigid

Flexible

Chances of Rejection

Higher

Lower

Loan Amount

Based on income and credit

Based on policy surrender value

Impact on Credit Score

Affects credit score

No impact if repaid on time

Eligibility

Requires good credit history

Requires active insurance policy

Conclusion

A loan against an insurance policy provides quick funds with lower interest while preserving your coverage. Understanding eligibility, benefits, and repayment options helps you make an informed choice. Consider how it impacts your policy before applying to ensure it fits your financial needs and offers a practical borrowing solution.