Life insurance is usually seen as a way to protect your loved ones financially if something bad happens. However, many people don’t know that some life insurance policies can also be used as a backup in emergencies. One option is to take a loan against your life insurance policy, where you can borrow money by using the policy as security.
A loan against a life insurance policy is a secured loan where the policyholder pledges their life insurance policy to get funds from the insurance provider or a bank. This option is only available for traditional endowment policies, which build up a cash value over time. Policies like Jeevan Pragati, Jeevan Labh, New Endowment Plan, and New Jeevan Anand from LIC can be used for such loans. Term insurance plans, which don’t have a cash value, cannot be used for loans.
The loan amount is usually based on the cash value of the policy. Policyholders can borrow up to 90% of this value, making it a good loan option with less hassle. Unlike other loans, a loan against a life insurance policy usually doesn’t require a credit score check, so even people with low or no credit history can get it.
High Loan Amount – You can get a loan of up to 90% of the policy’s surrender value, making it a significant source of emergency funds.
Minimal Paperwork – Since it is a secured loan, documentation requirements are minimal compared to unsecured loans like personal loans.
No Credit Score Check – Most lenders do not check the borrower’s credit score, making it an accessible option for people with poor credit history.
Lower Interest Rate – The interest rate on loans against life insurance policies is usually lower than that of personal loans or credit card loans, making repayment easier.
Quick Loan Processing – Since the insurance policy itself serves as collateral, the loan approval and disbursal process is much faster than traditional loans.
Continued Life Cover – Even after taking the loan, the policy stays active, so the insured person's family will still be financially protected if something bad happens.
Limited Availability – Not all life insurance policies can be used for loans. Only traditional endowment plans with a cash value qualify. Term plans do not offer this option.
Waiting Period – You can apply for a loan only after having the policy for at least three years.
Risk of Policy Cancellation – If you don't repay the loan, the insurer can use the policy's cash value to recover the loan. If the loan amount is higher than the cash value, the policy may be canceled.
Reduced Maturity Benefit – If the loan is not fully repaid, the insurer will take the remaining loan amount, plus interest, from the final payout.
Limited Loan Amount for Some Policies – Some policies may not allow loans up to the full 90% value, and the available loan amount depends on the insurer's terms.
To be eligible for a loan against a life insurance policy, a person must meet the following criteria:
Must be a resident of India.
Must be at least 18 years old.
Must have a valid endowment life insurance policy with a surrender value.
The policy must have completed the minimum waiting period (usually three years).
Original Life Insurance Policy Document – The original document is required as proof of ownership and for assignment purposes.
Proof of Identity – Aadhaar Card, Voter ID Card, Passport, or any other government-issued identity proof.
Proof of Residence – Aadhaar Card, Voter ID Card, Driving License, or utility bills.
Proof of Income – Salary slips, bank account statements, or income tax returns may be required in some cases.
Deed of Assignment – A formal document that assigns the rights of the policy to the lender until the loan is repaid.
A loan against a life insurance policy can be a good option in certain situations, but it might not be the best for everyone. If you need money quickly and don’t want to deal with a lot of paperwork or credit checks, this can be a useful choice. Plus, the lower interest rate makes it cheaper than personal loans or credit cards.
However, you should think carefully about whether you can repay the loan. If you don’t repay, your life insurance policy could be canceled, which can hurt you financially in the future. Also, if the loan isn’t paid back, the insurer will take the unpaid amount from your policy’s benefits, reducing your final payout.
So, only consider this loan if you have a solid plan to repay it and are sure you can pay it on time.
A loan against a life insurance policy is a smart way to get money when needed, without relying on expensive personal loans. The process is simple, needs little paperwork, and doesn’t affect your credit score. However, you should understand the risks, like the chance of your policy ending and receiving less money in the future. It’s a good idea to talk to your insurance provider to check if you qualify and understand the loan terms before taking it.
We understand that getting a loan can be very stressful with confusing documents, unclear communication, and various other challenges. That is why we take care of your loan application process, saving you time and hassle by handling the paperwork and communicating with the loan providers.
Check the details here at EazyBankLoan
Need help? Reach out at support@eazybankloan.com
No, loans are only available against traditional endowment life insurance policies that have a surrender value. Term insurance plans do not qualify.
You can generally avail of up to 90% of the policy’s surrender value.
No, most insurers do not check the credit score since the policy itself acts as collateral.
If you default, the insurer will deduct the outstanding amount from the policy’s surrender value. If the loan exceeds the surrender value, the policy may lapse.
Yes, the policy remains active, but the outstanding loan amount will be deducted from the final payout if not repaid.
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