Can I Take Loan Against Life Insurance Policy
Loan on an insurance policy is not very popular in India. One of the biggest reasons for this is that most policyholders are not even aware of this option. But thanks to the loan providers and their marketing campaigns, consumer awareness has risen considerably.
Modern 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 insurance policies in case of financial emergencies.
If you’re looking for a loan and own a Life Insurance policy, here are some of the most important things that you should know about this facility:
1. Are all Life Insurance policies eligible for loan?
No, as per the guidelines of the Insurance Regulatory and Development Authority of India (IRDAI), term insurance policies and unit-linked plans are not eligible for loans. However, you can take a policy loan if you have a traditional insurance policy like a money-back plan, endowment plan or a whole Life Insurance policy. Check with the lender to know more about the types of insurance policies that are eligible for this facility.
2. How much loan amount can I get against my Life Insurance policy?
Rather than the total Sum Assured of the policy, it is the surrender value that is taken into consideration for granting such loans. The surrender value is only acquired when you pay premiums for the policy for at least three years.
Most lenders offer 80%-90% of the surrender value as loan on the insurance policy. Some of the top lenders offer loan against a policy in the range of Rs 50,000 to INR. 5 crores.
3. What is the eligibility for Life Insurance loans?
Compared to other types of loans like Personal Loans, the eligibility criteria for taking a loan against your insurance policy are minimum. The most important criterion is ensuring that the type of insurance policy you own is approved for a loan by your selected lender.
Apart from individuals, this loan facility is also available to partnerships, companies, Hindu Undivided Families (HUFs) and sole proprietorships.
4. How to apply for a loan against policy online?
Most lenders now allow borrowers to apply for a loan on their insurance policy online. If you own an insurance policy that is eligible for the loan facility, you’ll be required to fill up the loan agreement to apply for a loan online.
Many lenders create a Current Account for borrowers to disburse the loan amount. For this, you’ll also be asked to complete the account opening formalities.
5. What are the documents required to apply for a loan against insurance policy online?
To apply for a loan, you need to submit the original policy documents along with your address proof, ID proof and income proof. You also need to submit a ‘Deed of Assignment’ which will assign your insurance policy in favour of your lender.
Loan Against Policy: An easy way to borrow
While the protective cover offered by a Life Insurance policy is its biggest benefit, the loan facility is a valuable add-on. Before applying for a Loan Against Policy, go through the terms and conditions of the lender to avoid any discrepancies in future.
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