You know that your Life Insurance plan can serve a dual purpose of offering lifetime financial security and helping you borrow money in difficult times? Read on to know how you can apply for a loan against Life Insurance policy.

The concept of Life Insurance was initially introduced to offer lifelong financial security to the applicant. It is an assurance to the policyholder of guaranteed returns upon policy maturity or in the event of death of the insured during the term of the plan. However, as time progressed, Life Insurance policies are now being increasingly used by the policyholders to also avail loan facilities during a financial crunch. This blog explores the possibility of availing a loan against Life Insurance policy for the insured.

When you need a huge sum of money to purchase something specific (such as property or material goods like a vehicle), one generally looks up to the option of taking a loan from a money-lender (such as a bank or any other financial institution). However, it may not always be necessary to rely on unsecured loans as the only option to meet financial obligations.

Life Insurance now guarantees its policyholders an alternate loan-availing facility against their purchased insurance plans. This only means guaranteed financial security for the policyholder and his/her loved ones in the future as well as a means to depend upon for money as and when required.

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Benefits of Loan Against Life Insurance

Let’s look at some of the top advantages of availing loan against your Life Insurance policy:

  1. The prime advantage of taking a personal loan against Life Insurance is the relatively lower rate of interest. While interest rates on personal loans from banks may range somewhere between 12% and 24%, the same personal loan availed against a Life Insurance policy comes at an interest rate of 10.5%-12.5%.
  2. Loan against Life Insurance can be particularly helpful for those who have a low CIBIL score. CIBIL score reflects how credit-worthy an individual is; hence, those with a low CIBIL score may find it difficult to seek credit. However, while availing loan against Life Insurance, banks do not assess the CIBIL score of an individual and he/she may be granted a loan smoothly without any trouble.
  3. Availing a loan against insurance involves a hassle-free process with minimum documentation required. Moreover, the chances of the loan application being rejected are minimal.

>>Postal Life Insurance (PLI) Interest Rate on Loans

How to Take a Loan from Life Insurance?

We looked at the various benefits in availing a loan against your Life Insurance policy during difficult times versus seeking one from a bank or financial institution. Now let us look at the different steps involved in this process:

  1. Enquire from the insurance company from which you have purchased the Life Insurance policy about the loan-availing facility.
  2. Once confirmed, make enquiries about the eligible amount of loan granted by the company to its policyholders. Generally, the loan amount would depend on the specific type of Life Insurance plan purchased by the said policyholder and the term remaining on the policy.
  3. If it deems suitable to your requirement, submit an application for the loan to the insurer. This would also involve assigning the policy to the insurer/the bank granting the loan against Life Insurance. Assigning the policy means transferring all policy rights to the insurer/bank (lender) for the term of the loan.
  4. The lender would require you to clearly state all policy details as well as the amount of loan in the format specified by the insurer/bank.
  5. The next step is to pay the loan processing fee as well as the rate of interest + other relevant charges to the bank.
  6.  Upon careful review of policy details and relevant documents, the insurer/bank would approve the loan within 2-3 working days (this may vary between different insurers).
  7. Once approved, the loan amount is granted to the borrower and all policy rights automatically transferred to the lender. The policy would be reassigned to the insured via endorsement after return of the loan amount.

Companies Offering Loan Against Life Insurance Policy

If you’re considering taking loan against Life Insurance, it’s worth knowing the rate of interest for the loan at some of the leading banks and financial institutions:

Name of the Insurer/Bank/Lender Rate of Interest Offered on the Loan Amount Granted
LIC Housing Finance 14.80% and above
Bajaj Finserv 13% and above
Kotak Mahindra Bank 10.75% and above
Axis Bank 10.25% and above per annum

Read More: What are the Best Benefits of Term Insurance if You Have a Loan?

Wrapping it Up

This blog detailed the exact procedure for applying for a loan against Life Insurance policy. It also stated the rate of interest offered by different insurers for your better understanding. Know that it is always wiser to avail a loan against your existing Life Insurance policy rather than seeking one from a bank/any other financial institution. For more information on getting a loan against Life Insurance or for details on various Life Insurance plans as per your requirement, visit PayBima online.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, car insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

FAQs on Loan Against Life Insurance Policy

Can you take a loan against Life Insurance policy?

Some insurers encourage their policyholders to avail the loan facility against the purchased Life Insurance plan from the insurance company. The policyholder needs to submit a loan application form and assign the original Life Insurance policy document to the insurer at the time of availing the loan.

What is the minimum amount in loan against insurance policies?

A minimum of Rs. 5 lakh to Rs. 5 crore can be granted as loan against Life Insurance policies. However, it is always better to check with your insurer about the specific loan amount or term of loan granted.

How soon can I borrow against my Life Insurance?

Your insurer would generally allow you to avail loan facility against Life Insurance when there is a sufficient cash value build-up in the policy to facilitate taking loan in the specific amount required.  



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