Loan against a life insurance policy is not very well-known in India; however, consumer awareness is rising considerably due to communication by lenders.
Modern-day Life Insurance policies are highly versatile. Apart from the protective cover, they now also have another very valuable application- policyholders can now take a loan against their life insurance policies in case of financial emergencies.
What is a Loan Against Life Insurance Policy?
You can borrow money in the form of a loan by using the surrender value of your life insurance policy as collateral. This lets you to obtain money quickly without having to liquidate your policy. This option is available for eligible policies including Endowment and ULIPs.
How Does a Loan Against Life Insurance Policy Work?
The insurer determines the surrender value of your life insurance policy to determine the loan amount you can get. The loan amount sanctioned can be between 50% and 90% (50% for Equity ULIP, 80% for Debt ULIP and 90% for Endowment) of the surrender value. The life insurance policy continues to provide coverage and liquidity advantages while the loan is repaid with interest.
Note: Only policies that have passed their lock-in period are eligible to get the loan.
Benefits of Taking a Loan Against a Life Insurance Policy
Below are the key benefits:
Quick approval: These loans are processed faster than unsecured loans, making them ideal for urgent financial needs or emergencies.
Lower interest rates: Since the loan is backed by your life insurance policy, banks generally offer lower interest rates as compared to unsecured loans.
Policy ownership stays with you: Even after availing the loan, you continue to enjoy all the benefits of your life insurance policy.
Overdraft facility: The loan is given in the form of an overdraft, so the interest is charged only on the amount you use and only for the time it’s used.
What You Should Know About Loan Against a Life Insurance Policy
If you’re looking for a loan against your life insurance policy, here is an important point you should be aware of. Rather than the total Sum Assured of the policy, the surrender value of the policy is taken into consideration for granting such loans. The surrender value is acquired only when you pay premiums for the policy for at least three years. Most lenders offer 80%-90% of the surrender value as a loan. Some leading lenders offer a loan against a life insurance policy in the range of ₹ 50,000 to ₹ 5 crore.
Eligibility for a Loan Against a Life Insurance Policy
The policy must be lender-approved
This loan is available to individuals, partnerships, companies, HUFs and sole proprietorships.
How To Apply
Here is how you can apply for a Loan Against Life Insurance Policy with ICICI Bank:
Visit any ICICI Bank Branch to apply for the loan.
Carry your ID proof, income proof and your life insurance policy details to support your loan application.
Fill the loan application form correctly with all necessary personal details and the details of your life insurance policy.
Hand over your documents to the Bank representative for verification and processing of your loan application.
Once the details are verified and the loan is approved, the loan amount is disbursed promptly, ensuring quick access to funds.
Documents Required to Apply for a Loan Against a Life Insurance Policy
Original policy documents
Address proof and ID proof
Income proof
‘Deed of Assignment’ to assign the policy to the lender.
FAQs
1. How long does it take to get the Loan amount disbursed?
If all necessary paperwork is completed and the policy satisfies the eligibility requirements, the loan amount is usually released within a few working hours after the application is approved.
2. Does taking a loan against my life insurance policy affect my credit score?
No, your credit score is not affected, since this is a secured loan. Repaying the loan does not affect the policy's validity. If you do not repay the loan, the bank will surrender the policy and use the proceeds. Improper repayment can impact your credit score.
For disclaimer, Click Here.