Loan Against Insurance Policy

A loan against insurance policy is a type of secured loan where you can borrow money by pledging your life insurance policy as collateral. Loans against insurance policies are only available by pledging certain types of traditional policies - namely money-back or endowment plans. These policies feature both savings as well as life cover components, making them viable collateral for banks.

Interest Rates of Loan Against Insurance Policy

Interest rates are determined by the insurance provider offering the policy loan. Rates charged can vary from company to company. Currently, the interest rates for a loan against LIC policy start at 10% p.a.

Here are the highlights of the Loan against the Insurance Policy

Loan amount Between 85% to 90% of the surrender value
Interest rate Starts from 10% p.a.
Repayment tenure Starts from 12 months
Note: The interest rate and tenure vary across lenders.

Eligibility Criteria of Loan Against Insurance Policy

Loans against insurance policies allow policyholders to use their existing policies for access to funds. By pledging whole life and endowment plans as collateral, borrowers can obtain financing at relatively low interest rates. The key eligibility criteria for a loan against an insurance policy are:

  • Minimum age of 21 years.
  • Salaried individuals or self-employed individuals are eligible.
  • R is the interest rate.
  • Must be a resident of India.
  • Some banks may specify a minimum insurance policy value to be pledged.
  • Must have a regular source of income to service interest payments.

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Lenders Providing Loan Against Insurance Policy

Many of these lenders offer quick processing, flexible repayment tenors, and favourable interest rates to motivate borrowing against insurance over traditional loans. Reviewing and comparing offerings from the major banks and insurers mentioned can help applicants find the most competitive loan against their policy. Here are some of the top lenders offering loans against insurance policies:

  • HDFC Bank
  • Kotak Mahindra Bank
  • Bajaj Finserv
  • ICICI Bank
  • Aditya Birla Finance
  • LIC

Documents Required For Availing Loan Against Insurance Policy

Obtaining a loan against an insurance policy requires minimal documentation compared to traditional financing options. Most lenders only mandate the following basic items:

  • Valid identity proof such as an Aadhaar card, PAN card, or driver's licence.
  • Address Proof: Aadhaar card, PAN card, utility bills (electricity or water).
  • Original insurance policy documents to pledge as collateral.
  • A recent passport-sized photograph.

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Features & Benefits of Loan against Insurance Policy

Taking out a loan against an insurance policy can serve as an immediate financing option for urgent needs. Here are the benefits of a Loan against Insurance Policy:

  • No Additional Collateral Required: The cash value built up within the insurance policy itself acts as collateral for the loan, so no other asset is required to be pledged.
  • Lower Interest Rates: Interest rates are lower compared to personal loans as the money is already secured by the policy's value.
  • High Loan Approval Chances: Approval rates exceed 90% in most cases as eligibility determination emphasizes the policy's cash value rather than credit score or income proofs.
  • Outstanding Loan Settled from Death Benefit: If the insured person, unfortunately, passes away before the loan repayment is completed, the outstanding loan balance gets deducted from the death benefit payout.
  • Access Funds Without Surrendering Policy: Borrowers can withdraw money from the policy without losing valuable life insurance protections by surrendering.
  • Maintain Long-Term Coverage: Original insurance coverage remains intact for future beneficiaries or needs even after taking a loan.

How to Apply for a Loan Against Insurance Policy

You can apply for a loan against insurance both online and offline mode:

1. Offline at a Bank Branch:

  • Personal Consultation: Talk to a bank representative to learn about LAPs, address any questions, and receive personalized guidance. This is ideal for detailed information and clarification.
  • Direct Application: Submit your application directly at the branch for efficient processing.

2. Online Application:

  • Quick and Convenient: Apply online for a faster and more comfortable experience.
  • Digital Process: Some lenders even allow document submission and loan approvals online for a seamless experience.
  • Loan Tracking: Monitor the status of your application anytime with an online tracking system available through most lenders.
  • 24/7 Support: Get answers and help with your LAP application through the customer contact centers of most banks.

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Frequently Asked Questions

It is a loan that uses the cash value of whole-life, endowment policies as collateral. You borrow against the policy without surrendering coverage.

Whole life, endowment, money-back, and ULIPs with cash value are eligible. Term life plans are generally not eligible.

You can apply directly through the insurance company or banks/NBFCs online or physically by submitting basic documents.

Interest rates usually start from 10% p.a. with flexible repayment duration.

Quick access to funds, collateral not needed, competitive rates, continued insurance coverage after loan.

Large outstanding loans reduce death benefits payable to beneficiaries and cash value growth.

Policy provides continued coverage except for reduced death benefit by any outstanding loan balance amount.

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