A life insurance policy is meant to provide financial coverage to one’s dependents in case of an untimely eventuality. In addition to this benefit, certain types of life insurance policies also allow policyholders to take a loan against the surrender value of the policy. Keep in mind that you can only borrow a loan against your life insurance policy if your policy has acquired a surrender value.
Individuals who have purchased a term insurance policy from LIC will not be able to borrow a loan against the policy. Also, as per recent regulations, you also cannot borrow a personal loan against a unit-linked insurance plan (ULIPs).
You can, however, borrow loans against traditional policies such as money-back plans, whole life insurance plans, and endowment plans. That said, keep in mind that you cannot apply for a loan as soon as you purchase an LIC life insurance policy. You will need to wait until the policy acquires a surrender value, which will happen only after you have paid the due premiums for around 3 years.
A few benefits of borrowing a loan against an LIC policy are as follows:
The eligibility criteria to borrow a loan against one’s LIC life insurance policy are as follow:
*Note: Any other conditions that are specified by the lender will have to be met for you to be able to borrow a loan against your LIC policy.
Some of the key features of borrowing a loan against your LIC life insurance policy are as follows:
If you are eligible to take a loan against your LIC policy, you will need to do as follows to borrow a loan:
Most lenders charge an interest rate of between 9% and 11% p.a. on loans taken against LIC life insurance policies.
A few documents that you will need to submit when borrowing a loan against your LIC life insurance policy are as follows:
There are other options for availing personal finance, other than loan against your LIC policy:
You will need to pay interest on the loan amount that you utilise at least twice in a given year. The principal can be repaid at the completion of the loan tenure or can be adjusted from payouts that you or your nominee may be eligible to receive via the policy.
If you have an LIC policy, borrowing a loan against your policy may be a better option borrowing other types of loans. That said, ensure that you familiarise yourself with the various terms and conditions of the loan before you submit the application form for the same.
1. What if the policy matures or is claimed within the loan repayment period?
Ans: In case the policy matures or is claimed within the repayment period, interest will be charged only till the maturity or claim date, appropriate principal and interest will be deducted and the balance will be paid out to the policyholder or the nominee, as the case may be.
2. Will I be eligible to borrow a loan against my LIC life insurance policy even if I default on premium payments?
Ans: No, you will need to pay your premiums regularly for three full years for the policy to acquire a surrender value. You will only be eligible to borrow a loan against your policy after it acquires a surrender value.
3. What will happen if my policy lapses after I take a loan against the policy?
Ans: In this case, the lender will recover the outstanding loan amount from your policy’s surrender value.
4. What is the minimum loan amount that I can borrow against an LIC policy?
Ans: The minimum loan amount that you will be able to borrow will vary based on the lender’s terms and conditions. Most lenders, however, allow policyholders to borrow any sum upwards of Rs.50,000.
5. How do I know if I am eligible to avail a loan against my insurance policy?
Ans: You can contact your insurance provider or a lender to know whether you are eligible to borrow a loan against the policy.
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