Unlocking Funds: Understanding Loans Against Insurance Policies
Loans against insurance policies provide a convenient option for accessing funds, particularly when traditional policies like money-back and endowment policies are pledged. These policies, which include a savings component along with life cover, are accepted as collateral by banks. To qualify for such loans, the policy must have a surrender value, typically allowing borrowers to access 85% to 90% of this value.
How to Get a Loan Against Your Insurance Policy:
Insurance policies are now recognized as valuable assets by banks, with major insurers like LIC of India facilitating such loans. Only traditional policies such as money-back and endowment policies are accepted as collateral, given their dual nature of providing life cover and savings. Unit-linked insurance plans and term insurance covers are generally not eligible.
The surrender value of the policy is crucial for loan eligibility, with borrowers usually able to access 85% to 90% of this value. LIC charges an interest rate of 10%, payable semi-annually. Repayment terms are flexible, with options including interest-only payments and deduction of the loan amount from the claim settlement.
Why Loans against Insurance Policies Are Popular:
These loans offer flexibility and convenience, appealing to customers seeking financial assistance. Even those with lower credit scores find them accessible, thanks to lenient eligibility criteria and quick approval times. In case of the policyholder’s demise, the loan amount and interest can be deducted from the claim settlement, ensuring the policy’s beneficiaries are not burdened.
Customers are advised to consider purchasing term cover to protect their families’ interests. Online term plans offer cost-effective options based on age, insurer, and policy tenure. Instead of pledging policies as collateral with banks, opting for secured loans from insurers is recommended.
For those needing intermittent funds and seeking enhanced liquidity, banks offering overdraft facilities against policies may be considered. Overall, loans against insurance policies provide a convenient and efficient way to access funds when needed.
