Do Not Call
Table of Contents
You may face urgent financial needs and wonder if taking a loan against an insurance policy is a smart choice. This option allows you to borrow money by using your life insurance policy as security. It can be quicker and simpler than other loans, but it also comes with important conditions and costs. Knowing the features, eligibility, and differences from personal loans helps you decide if this option suits your needs. You will also learn about interest rates, application steps, and the documents required, ensuring you don’t miss crucial details before applying.
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.
Flexible Loan Options
You can opt for a flexible loan against an LIC policy, allowing multiple withdrawals and paying interest only on the amount used.
Interest Payment After Lock-in Period
For loans taken during the lock-in period, repayment of principal and interest can be done together after the period ends.
Pre-approved Loan Limits
Loans are pre-approved based on your policy’s surrender value, allowing quick access to funds within sanctioned limits.
Easy Prepayment Without Extra Charges
You can repay or close your loan against LIC policy early without any additional fees or penalties.
Minimal Documents Required
Only basic documents like valid ID, address proof, bank details, and insurance policy proof are needed to apply for the loan.
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
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
How to Apply for a Loan Against an Insurance Policy
Here is a simple process to help you apply for a loan against your insurance policy quickly and efficiently:
Verify that your insurance policy is eligible for a loan by checking its terms and surrender value
Compare lenders to find the best interest rates and loan terms
Collect all necessary documents, including your insurance policy, identity proof, and surrender value certificate
Complete and submit the loan application form with accurate personal and policy details
Allow the lender to verify your documents and assess your policy’s surrender value
Review and accept the loan sanction terms provided by the lender
Arrange repayment setup if required, such as automatic EMI payments
Receive the loan amount credited directly to your bank account
Important Points to Consider Before Applying
Here are key factors to keep in mind before you apply for a loan against life insurance policy:
The interest rate for a loan against LIC policy is usually lower than personal loans and generally remains fixed during the loan tenure.
You can choose repayment options such as EMIs, lump sum payments, or having the principal deducted from the policy’s maturity value.
Loans typically cover up to 80–90% of your policy’s surrender value, so plan your borrowing needs accordingly.
Any outstanding loan amount and accumulated interest will be deducted from your policy’s maturity proceeds, reducing your returns and financial safety net.
Your policy must be active and premiums paid up to date; a lapsed or surrendered policy cannot support a loan.
The repayment period often depends on your policy tenure, so it may be shorter or longer depending on your plan.
Failure to repay the loan or interest may lead to policy lapse, causing loss of insurance coverage and benefits.
Interest paid on a loan against an insurance policy is generally not tax-deductible, unlike some other types of loans.
Loans against insurance policies usually have faster processing and approval times due to the policy acting as collateral.
Taking a loan against your insurance policy may affect your ability to secure additional loans using the same 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 |
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.
Academy by Bajaj Markets
11317
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
6888
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
1796
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
2314
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
212
Discover essential insights on various types of insurance in India.
1307
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
