What are Loans Against Insurance Policy?
Loans against insurance policies are financial solutions available against your life insurance policies. You can get this loan under savings-oriented life insurance plans like endowment and money back plans. The loan is determined as a percentage of the surrender value and you can get the funds to meet your financial needs.
Under a life insurance policy, you can apply for a loan and get funds up to a specified percentage of the surrender value.
Alternatively, banks and Non-Banking Financial Companies (NBFCs) offer loans against securities wherein you can pledge your savings-oriented life insurance policies as collateral and get a loan against their value. Under these loans too, the loan amount depends on the surrender value of the policy.
Features & Benefits of Loans Against Insurance Policy
Some of the salient features and benefits of loans against insurance policies are as follows –
- Usually, loans up to 90% (it may vary product to product) of the surrender value can be availed[1].
- If you take a loan from the insurance company, the repayment tenures are flexible[1]. You can repay the loan at your discretion, or the outstanding amount will be deducted from the policy benefits at the time of claim. However, if you take a loan from a bank or NBFC, there might be a specific repayment tenure and EMIs.
- In the case of insurance companies, there might not be any need for additional documentation as the insurer has most of your information on record[2].
- In any case, the loan and the outstanding interest cannot exceed the surrender value. If they do, the insurance company will foreclose the policy and the coverage will stop.
Interest Rates of Loan Against Insurance Policy
The interest rate on a loan against an insurance policy depends on the insurance company or the financial institution from where you get the loan. The interest rate is mentioned beforehand so that you can assess the affordability of the loan. Moreover, in most cases, the interest rates are affordable[1].
Eligibility Criteria for Loans Against Insurance Policy
If you borrow the loan against your life insurance policy from the insurance company, there will not be any specific eligibility criteria to fulfil. The only eligibility criterion is a surrender value. Your policy should have acquired a surrender value on the date of loan application to be eligible for the loan. Moreover, the surrender value should be optimal to meet the minimum loan amount. Besides these two eligibility parameters, there are usually no other requirements to qualify for a loan against the policy[2].
However, in the case of banks and other financial institutions, there might be specific eligibility criteria which you have to fulfil to qualify for the loan. Besides the surrender value and its amount, the criteria might include your age, income, credit score, occupation, etc.
Check for the specific eligibility criteria when applying for the loan and ensure that you qualify on them so that you can get the funds easily.
Application Fees, & Other Charges for Loan Against Insurance Policy
The application fee and charges on the loan depend on the insurance company, bank or NBFC. Usually, banks and NBFCs might charge a processing fee and other relevant charges on the loan. However, insurance companies might not have an elaborate charge structure and can sanction the loan cost effectively.
Check the charges and fees before applying for the loan so that you know of the added expenses payable.
How to apply for a Loan Against Insurance Policy?
You can apply for the loan against insurance policy online or offline. Here’s how –
Online mode
If you apply for the loan from the insurance company, you can log into your account and make an online request for the loan. Fill out the online application form and complete the formalities to apply.
Offline mode
You can make a written request at the branch office of the insurance company. Fill out the required paperwork, submit the relevant documents and pay the necessary fees and charges to apply for the loan.
