Loan Against LIC Policy

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Besides being one of the most sought out options, for life insurance for Indian citizens, Life Insurance Corporation policy allows you to get personal loans against it for meeting your immediate needs. A lot of people are not aware of this advantage because of the lack of publicity of this option from the LIC policy.

It is easier to get a loans against your LIC policy as they come at cheaper interest rates. However, they are only good for Personal Loan needs as there are restrictions in terms of the amount that can be borrowed even as a member of the policy. Note that for submission of loans only the endowment policies are applicable.

How much can be Borrowed on your LIC Policy?

The Cash Value is the term that needs to be noted, which is also known as the Surrender Value of the policy as well. Prior to applying for the loan it is essential to know the exact cash value of your policy as, in the case that it is very less it is useless applying for the personal finance option unless it is a huge amount.

The Surrender or Cash Value

The cash or surrender value is basically the amount payable to the policyholder in the case he or she decides to discontinue the policy and encash the same from LIC. This amount is only payable after three full years premiums have been paid to their LIC policy. Also, in case it is a participating policy, the Bonus amount is automatically attached to the amount as per rules of LIC. The surrendering of an LIC is not a good idea considering that the value is always considerably low. However, it means that the loans that you can avail against this amount from LIC will also always be comparatively low.

Eligibility Criteria for Availing the Loan against your LIC Policy

Here are some of the main eligibility criteria’s, if you wish to avail a loan against LIC policy:

• He or she must be an Indian citizen or residing in India.
• He or she should own an LIC policy.
• The applicant also must have paid three years of complete premiums before applying for the loan.
• He or she should be at least 18 years of age.
• The maximum loan amount available under the policy is 90% of the Surrender Value of the policy. In Case of paid up policies 85% of the surrender value and cash value of bonus is the maximum that can be loaned in.

What is The Rate of Interest Applicable for Availing a Loan against LIC Policy?

The rate of the interest applicable on the loan is 9% and the minimum period loan is given if for 6 months.

Features and Benefits of Loan on LIC Policy

The following are the features, including the benefits of availing a loan against your LIC policy:

• The loan against your LIC policy is an advance made against the cash value or surrender value of the policy.
• The advance is always less than the case value.
• Most of the insurers approve 90% of the cash value of the policy.
• In case a loan is given, the policy is absolutely assigned and held by Life Insurance Corporation of India as security for repayment of the loan.
• You have to pay the interest specified in the loan, which in the case of an LIC policy is generally 9%.
• If the individual fails to pay the interest by the due date, the amount will be added to the principle and the interest will be calculated again.
• If the total amount of debt is more than the surrender value, LIC takes the leverage of terminating the policy.
• If the policy matures prior completion of loan repayment, LIC also has the rights to deduct the loan amount from the maturity amount.

Alternatives of Personal Finance besides Loan against LIC Policy

There are other options for availing personal finance, other than loan against your LIC policy:

1. Independent personal loans from banks and financial institutions, with higher rate of interest but more features, lesser restrictions of loan amount and more benefits.
2. Personal Loan against Credit Card, which are more viable as an option in terms of lower interest rates and the repayment can be made through the monthly credit card bill cycle through EMIs. Again lesser restrictions.
3. Other Life insurance providers also offer loan against their life insurance products although it is suggested not to take a loan against a ULIP as it has some risk factors involved.

Loans against LIC Policy FAQs

What is the amount of loan one can avail against an LIC Policy?

The amount of loan sanctioned can be only till a maximum of 90% of the policys surrender value. The surrender value is achieved after payment of 3 years of premium in full, so the loan can be availed only after that.

What is the minimum time within which the loan can be repaid?

The minimum time allowed for repayment is six months. Even if the principal is settled off within two or three months, the interest for the period of six months will have to be paid.

What if the policy matures or is claimed within the loan repayment period?

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.

Can multiple loans be taken against a single LIC Policy?

Yes, even if the interest on the first loan hasnt been paid, a second loan can be allowed from LIC, provided the policy is of an increasing cover type that increases annually. No reason needs to be offered for this loan as well.

What is the rate of interest and how frequently is it calculated?

The current rate of interest (as of December 2015) is 10% per annum which is the lowest that one can get in the market as far as personal loans are concerned. The interest is calculated semi-annually, so twice in a year.

What is repayment structure or EMI scheme?

There is no particular EMI structure and the principal can be paid in as less or as more amounts as possible. Lessening principal will effectively lessen the interest amount that needs to be paid.

Can this facility be availed online?

No, as of yet, the facility can be availed only by physically visiting the branch where one has availed the policy and the loan from. Repayments also have to be done through physical visits.