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Your Life Insurance Policy can offer you a loan in case of an urgent need!

October 22, 2022

Table of Content

1. How to apply for a loan against life insurance policy?

2. Here are a few things you must keep in mind before you opt for a loan against your life insurance policy:

Life Insurance policies like endowment and money back plans offer you a loan facility.
The loan amount depends on the surrender value of your policy.
The rate of interest charged on this loan and the loan repayment options vary across insurers.

When Aman was in the last stage of constructing his house, he fell short by a few lakh rupees. Being the sole breadwinner of the family, he had no collateral to mortgage for availing the loan. Instead of availing a personal loan at high interest rates, Aman approached his life insurance company for a loan against his policy.

"The loan that I took against my life insurance policy helped me complete the construction of my house on time," recalls Aman.

In addition to providing financial protection to your family, your life insurance policy can also help you meet your immediate need for funds.

How to apply for a loan against life insurance policy?

You will be surprised to know that you can take loan against life insurance policy. Sometimes financial needs are unpredictable and in such situations loan solves a huge problem by providing loan on life insurance policy and so that you can meet your financial needs.

Only certain types of maturity benefits. Endowment Plan life insurance policies offer the loan feature. You can avail a loan against life insurance policies that offer maturity benefits. Endowment Plan and Money Back Plans are few types of policies that offer this feature. Maturity Benefit refer to the amount you receive at the end of your policy period. While Unit Linked Insurance Plans (ULIPs) also offer maturity benefits, the fact that returns are market-linked makes them unsuitable as a collateral for availing loan.

Here are a few things you must keep in mind before you opt for a loan against your life insurance policy:

You can avail a loan against your life insurance policy only if you have paid renewal premiums regularly for at least three years.
The amount of loan you can take depends on the surrender value of your life insurance policy. Generally, you get a loan amount equivalent to 80% of the policy's surrender value. For e.g. if the surrender value of your policy is ₹ 3 lakh, you can avail a loan of approximately ₹ 2.4 lakh.
The rate of interest on the loan may vary across insurers. The interest rate also depends on the number of years you have paid the renewal premium.
You need to repay the loan within the policy period. Loan repayment options vary across insurers. Some insurers may offer you an option of repaying only the interest amount and get the principal amount deducted from the final settlement amount at the end of policy term.

Always remember to repay the loan on your life insurance policy to reap the maturity benefit that may help you meet your future needs.

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ARN:ED/08/22/28500

Francis Rodrigues

Written By:

Vishal Subharwal

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