Loan Against ULIP Policy

What is a ULIP Policy?

A unit-linked insurance plan is a life insurance policy that provides insurance coverage over the policy tenure, along with the benefit of earning market-linked returns. The premium you pay for a ULIP is split into two portions — one part goes toward your life insurance coverage, and the other part is invested in market-linked funds of your choice.

With ULIPs, you not only get life insurance protection but also the potential to earn market-linked returns on the premiums that you invest.

 

How Loans Work Against ULIP Policy

When you take a loan against ULIP, the policy is the collateral like other life insurance policies. The amount of loan that you are offered depends upon the then Fund or Surrender Value. What is surrender value? It is the amount paid to the policyholder in case they choose to terminate the policy before its maturity. The eligibility to avail a loan against ULIP policy is usually set by the lender. You can check their website and gather the necessary documents to apply for a loan however it is pertinent to note that insurance companies do not provide loan against ULIP Policies.

 

Benefits of Availing a Loan Against ULIPs

The loan facility under a ULIP policy has various benefits. Some of these benefits are as follows –

 

Ease of Availing Loans

Taking a loan under the ULIP plan is simple. You just have to pledge your ULIP as collateral with a lender and get the funds sanctioned to your bank account.

 

Keep Your Policy Active

Taking a loan on your ULIP does not disrupt its continuity. You just pledge the policy to the lender as collateral but you retain its ownership. The policy remains active, the coverage continues, and if you pay the due premiums, the fund value will also keep growing.

 

Competitive Interest Rates

Lenders often offer competitive interest rates on loans against ULIPs. Since the loans are secured, the chances for repayment defaults are minimised for lenders. If you default on the loan, the lender can use the policy benefits from the ULIP to realise the outstanding debt. Since lenders have reduced risks, interest rates are affordable..

 

Flexible Repayment Options

The loans have flexible repayment tenures, allowing you to choose a tenure which gives affordable EMIs.

 

Zero Prepayment Charges

In some cases, the lenders might not levy any prepayment charge if you close the loan earlier than the repayment tenure. Moreover, for loans availed availed or renewed on or after 1st January 2026, no prepayment charges would accrue².

 

Why Take Loan Against ULIP?

If ever a need arises for quick cash and you don’t entirely want to dissolve your investment in ULIP policy, a loan against ULIP is a viable option.

Here are some possibilities when you can choose to get a loan against ULIP policy:

 

Expect The Unexpected

As mentioned earlier, there can be a sudden expense that you hadn’t anticipated. There may be a sudden need for a huge amount of funds, it can be for a car expense, an important appliance repair, an urgent travel requirement or a medical expense. By applying for a loan against ULIP, you may be able to receive your funds faster compared to other avenues whereas your investment (units) in policy remains intact.

 

Planned Expenses

A loan isn’t only sought when there is an unexpected situation. It can also help in filling the gap between your planned expense and what you are currently saving. If you had a home renovation planned for years but the damages are beginning to show earlier than expected, you can avail a loan against ULIP and begin the work without hurting your current savings.

 

Managing Existing Debt

A loan against ULIP can also be helpful in saving costs when you are paying off debt.

 

Safety Net For Entrepreneurs

A business is impacted by multiple factors which are social, political and economic. A business owner can avail a loan against ULIP to tackle cash flow shortage and meet business needs. The uncertainty of a business may also spring up unexpected expenses at a short notice. A loan against ULIP will help you quickly arrange funds for these expenses without affecting your long-term policy investment.

 

How to Apply for a Loan Against a ULIP Policy?

If you want to apply for a loan against a ULIP policy, here are some steps to take -

1. Check Your Eligibility Criteria

   First, check whether you meet the eligibility criteria of the lender. Lenders might have eligibility requirements pertaining to your age, eligible ULIPs, credit score, etc. Meet the required eligibility criteria to apply for the loan.

2. Evaluate the Eligible Loan Amount

   While availing a loan against ULIP policy, you may want to consider that you will not be receiving the entire surrender value. There is a Loan-To-Surrender Value Ratio that is followed by the lender.

   Check this ratio and find the eligible loan amount that you can get.

3. Complete the Documentation Process

   You might have to submit some documents when applying for the loan. Find out the documents required from the lender and submit the documents to the lender to complete the loan application process.

4. Loan Disbursal

   After you apply, the lender will assess your loan application and verify your documents. After a successful verification, your loan would be sanctioned, and the funds would be disbursed.

 

Key takeaways

• ULIPs are life insurance plans that provide the dual benefits of life insurance protection and market-linked returns.
• You can pledge your ULIPs as collateral and avail of a loan against the policy’s surrender value.
• The benefits of a loan against ULIP include quick availability, affordable interest rates, flexible repayment options, and no prepayment charges.
• Even after pledging your ULIP, you retain its ownership and continue enjoying the life insurance coverage and market-linked returns on the invested premiums.
• To apply for a loan against ULIP, check the eligibility requirements, the available loan amount, submit the documents, and get the loan approved.

 

Conclusion

ULIPs, with their dual nature of life insurance coverage and potential of wealth creation, can help you create a corpus for your financial goals. Moreover, if you want corpus for any planned or unplanned needs, you can pledge your ULIP as collateral and take a loan against its surrender value.

So, understand the different aspects returns.

 

Faq's

Do ULIPs offer partial withdrawals or surrender?

ULIPs have a lock in period of 5 years, hence, partial withdrawals can only be made after 5 years( in case of financial exigencies) upto limits specified in the policy. You can surrender the ULIP during the lock-in period but the surrender benefit is paid only after the lock-in period ends.

 

Who can apply for a loan against ULIP?

Policyholders of a ULIP that has acquired a surrender value can apply for a loan against the policy, provided they meet the lender’s eligibility requirements.

 

What amount of loan can I get against my ULIP policy?

The loan amount would depend on your ULIP’s surrender value and the lender’s lending policies. You can check the eligible loan amount by contacting your lender when applying for the loan.

 

What is the interest rate on a loan against ULIP?

The interest rate depends on the lender and your eligibility. You can check the interest rate across lenders to find the lowest rate for the loan on ULIP plans.

 

How long does it take to get a loan against a ULIP?

Usually, lenders sanction the loan quickly if you meet the eligibility parameters, have submitted the required documents and the loan application is approved. The actual time varies across lenders.

Source

 

1. https://www.livemint.com/money/personal-finance/rbi-to-stop-banks-from-levying-foreclosure-charges-or-prepayment-penalties-on-loans-details-here-11740391087479.html
2. https://www.fidcindia.org.in/wp-content/uploads/2025/07/RBI-PRE-PAYMENT-CHARGES-02-07-25.pdf