Loan Against LIC Policy

A loan against a Life Insurance Corporation (LIC) policy offers a viable financial solution for policyholders seeking immediate funds without surrendering their policy. Referred to as a "loan against LIC policy," this option allows policyholders to leverage the cash value within their LIC policies as collateral for obtaining loans.

The process, available through LIC of India, typically involves an application for a loan against the LIC policy online, with interest rates calculated based on the policy's terms and the prevailing rates.

Why Take a Loan Against LIC Policy

Taking a loan on LIC policy allows quick access to cash without affecting credit scores, featuring lower interest rates than other loans. It offers flexible repayment options, keeps policy benefits, and allows versatile usage of funds. However, failing to repay the loan could reduce the policy's death benefit payout, so it's crucial to understand the terms and implications before deciding, keeping in mind both immediate financial needs and long-term consequences for policyholders and beneficiaries.

Interest Rates for Loan Against LIC Policy

Interest rates for loans against LIC policies vary based on policy type, market conditions, loan amount, and LIC's terms. Usually competitive and lower than unsecured loans, it's crucial for policyholders to understand these rates and terms before availing a loan against their LIC policy.

Factors Loans against LIC Policy
Interest Rate 10-12%
Process Easy and quick process. No documentation needed
Mortgaged Requirements No Guarantor or Security Required

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Top Banks Providing Loan Against LIC Policy

​When seeking a Loan Against LIC Policy, several prominent banks offer this financial facility, providing helpful terms and options. However, the table below for the comparison of top banks providing loans against LIC policies:

Bank Interest rate% p.a.
HDFC Bank 9.00 - 9.50
ICICI Bank 9.25 - 9.75
Axis Bank 9.50 - 10.00
State Bank of India 9.75 - 10.25
Kotak Mahindra Bank 9.75 - 10.50

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Eligibility Criteria For Loan Against LIC Policy

Here are the essential eligibility criteria for individuals seeking a loan against an LIC policy:

  • The applicant should be at least 18 years old.
  • A valid LIC policy is mandatory for loan eligibility.
  • The LIC policy used as collateral must have a guaranteed surrender value.
  • The applicant must have paid a minimum of three years' worth of LIC premiums in full.

Documents Required For Availing Loan Against LIC Policy

To apply for this secured loan, the following essential documents must be provided:

  • A completed application form accompanied by passport-sized photographs.
  • The original policy document.
  • Valid proof of identity: Aadhaar Card, Passport, Voter ID Card, or Passport.
  • Valid proof of residence: Aadhaar Card, Voter ID Card, Driving License, or Utility Bills (water or electricity).
  • Evidence of income: Salary Slips or Bank Account Statements.
  • Any additional documentation specified by LIC to complete the application.

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Features & Benefits of Loan Against LIC Policy

Here are the major features and benefits make Loan Against LIC Policy an attractive option for individuals seeking quick access to funds while safeguarding the benefits of their life insurance coverage.

  • Quick and Convenient Access to Funds: Policyholders can avail themselves of immediate funds by using their LIC policy as collateral, without surrendering the policy.
  • Retain Policy Benefits: Borrowers keep the insurance coverage and benefits of the LIC policy while accessing the loan amount.
  • No Surrender or Lapse of Policy: Instead of surrendering the policy or allowing it to lapse due to non-payment of premiums, individuals can opt for a loan against the policy to maintain its continuity.
  • Flexible Repayment Options: Banks usually offer flexible repayment schedules, allowing borrowers to repay the loan amount based on their convenience.
  • Competitive Interest Rates: Interest rates for loans against LIC policies are comparatively lower than personal loans or other unsecured borrowing options.
  • No Restriction on Usage: The loan amount can be used for various purposes, such as emergencies, education, debt consolidation, or other financial needs.
  • Minimal Documentation: The process for availing a loan against an LIC policy usually involves minimal documentation, simplifying the application process.
  • No Credit Check: Since the loan is secured against the policy, banks may not conduct stringent credit checks, making it accessible to individuals with varying credit histories.
  • Preserve Policy Benefits: By opting for a loan against the policy instead of surrendering it, policyholders retain the benefits, such as maturity benefits, bonuses, and death benefits

Types of Loan Against LIC Policy

Loans against Life Insurance Corporation (LIC) policies typically come in two main types:

Term Loan: This type of loan against an LIC policy provides a lump sum amount to the policyholder, which is repaid in installments over a specified period. Interest accrues on the outstanding balance, and the borrower can choose a repayment schedule that suits their financial capabilities.

Overdraft Facility: With an overdraft facility against an LIC policy, the policyholder can withdraw funds up to a certain limit determined by the policy's cash value. Interest is charged only on the amount withdrawn, offering flexibility in utilizing funds as needed, similar to a line of credit.

Both types of loans against LIC policies provide policyholders with immediate access to funds by leveraging the policy's cash value as collateral while maintaining the policy's benefits and coverage. The specific terms and conditions for these loan types may vary based on the policies offered by LIC.

How To Apply For Loan Against LIC Policy

Taking a loan against your LIC policy can provide quick access to funds, but it's important to understand the process and weigh the pros and cons before diving in. Here's a guide to help you navigate the application process:

  • Step 1: Compare loan terms, interest rates, and processing fees offered by different banks and NBFCs. Check for any special schemes available for your specific LIC policy type.
  • Step 2: Ensure you meet the eligibility criteria, including minimum policy age, policy type, minimum surrender value, and income requirements. Confirm with your chosen lender for their specific criteria.
  • Step 3: Prepare the documents like proof of identity, address, income, bank account details, and the original LIC policy document. Some lenders might request additional documents like medical reports for larger loan amounts.
  • Step 4: Fill out the loan application form with accurate information. You can apply online or visit the lender's branch.
  • Step 5: The lender will verify your documents and creditworthiness. If approved, you'll receive a loan agreement outlining the terms, interest rate, repayment schedule, and fees. Review the agreement carefully before signing.

Once the agreement is signed, the loan amount will be disbursed to your nominated bank account, usually within a few days.

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Frequently Asked Questions

A loan against an LIC policy allows you to borrow money by using your Life Insurance Corporation (LIC) policy as collateral. The policy's surrender value determines the loan amount. This way, you can access immediate funds without surrendering the policy.

Yes, you can leverage the cash value of your LIC policy as collateral to secure a loan from banks or financial institutions.

Yes, there are terms and conditions that vary based on policy type, surrender value, policy tenure, and premium payment status, set by LIC for obtaining such loans.

Generally, there are no restrictions on how you use the loan amount obtained against your LIC policy.

In many cases, loans against LIC policies are available even if the policy is not fully paid up, depending on the policy's terms and conditions.

Loans against LIC policies don't attract tax implications, as they're considered loans and not income.

If you don't repay the loan against your LIC policy, the outstanding amount along with interest will be deducted from the policy's death benefit.

Yes, you can apply for a loan against an LIC policy either online or by visiting an LIC branch.

To apply for a loan against an LIC policy, you'll need to fill out an application form, provide necessary documents, and await approval from LIC or the lending institution.

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