What is Loan Against Life Insurance Policy, Eligibility, Documents and How to Apply

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 a 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 a 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

A loan secured by a life insurance policy offers faster approval and competitive interest rates as compared to unsecured loans. Even if you take a loan against your life insurance policy, you keep ownership of the policy and continue to get its advantages. Moreover, this loan is offered as an overdraft, so you can pay the interest only on the amount utilised by you and only for the period it was utilised. This loan provides instant access to funds in emergencies.

Important Things that you should know about Loan Against a Life Insurance Policy

If you’re looking for a loan and have a life insurance policy, here are some of the most important things that you should know about this loan:

How much money can be borrowed from life insurance as the loan amount:

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.

What is the eligibility for 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 for the loan?

You can visit any ICICI Bank Branch to apply for a Loan Against a Life Insurance Policy. Carry the necessary documents, such as proof of identity, proof of income and policy information. Complete the documentation so that the Loan can be disbursed without delay.

What are the documents required to apply for a Loan Against a Life Insurance Policy online?

• 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.

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