To avail a loan against your LIC policy, you must meet certain criteria:
- Quick access to money – Funds are usually disbursed faster than personal loans.
- No need to surrender the policy – Your life cover remains active.
- Lower interest rates – As the loan is secured, interest is often lower.
- Flexible repayment – You can repay as a lump sum or in parts.
- Credit score: No strict credit score requirement.
- Documentation: Minimal paperwork
Knowing the ULIP advantages and disadvantages helps you decide if borrowing against your plan is the right financial move.
How to calculate loan amount on LIC policy
When you apply for a loan against your LIC policy, the amount you can get depends mainly on the policy’s surrender value and the lender’s loan-to-value (LTV) ratio. The surrender value is the amount your policy has accumulated over time, and only policies with a valid surrender value are considered.
Formula to calculate loan amount:
Loan Amount = Surrender Value × LTV Ratio
For example, if your policy has a surrender value of Rs. 1,00,000 and the lender offers an LTV ratio of 80%, your eligible loan amount would be Rs. 80,000.
To understand your eligibility better, keep these key factors in mind:
- Policy type: Traditional policies such as endowment plans are generally eligible if they have a surrender value.
- Surrender value: The higher the surrender value, the higher the loan amount you may receive.
- Policy age: Policies usually need to complete a minimum period, often around three years.
- Premium status: All premiums should be paid and the policy should be active.
- LTV ratio: The percentage of surrender value offered as a loan varies by lender and policy terms.
Understanding the loan eligibility against LIC policy rules is essential for policyholders looking to leverage their insurance as a financial asset.
Factors influencing loan against LIC policy
Several factors decide the loan amount and terms:
- Surrender value – This is the biggest factor.
- Loan-to-value ratio – Usually 80% of the surrender value.
- Interest rate – May vary slightly depending on the lender.
- Policy tenure – Longer-tenured policies may offer higher values.
- Repayment options – Flexibility in repayment adds to convenience.
Risks of loan against LIC policy
As with any loan, there are a few things to watch out for:
- Interest keeps adding up – If not repaid on time, interest can grow.
- Loan cap – You cannot not borrow beyond your policy’s surrender value.
- Policy benefits impact – If you do not repay, it may affect your death benefit payout.
How to avail a loan against LIC policy?
You can choose between two methods, both simple.
Online process
- Visit the LIC website and log in.
- Go to the ‘Policy Loan’ section.
- Choose the eligible policy (ULIP or endowment).
- View your eligible loan amount.
- Fill and submit the online form.
- On approval, funds are transferred to your bank.
Offline process
- Visit your nearest LIC branch.
- Fill in the loan application form.
- Submit your policy, ID proof, and other required documents.
- LIC will verify and process the application.
- On approval, funds are credited to your account.
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What is the interest rate on a loan against an LIC policy?
The loan amount and interest rate for an LIC policy loan depend largely on the policy type and its surrender value. Since the policy itself acts as collateral, these loans are generally easier to access and priced lower than unsecured borrowing options. Here are the key points to know:
- Loan amount: Typically up to 80% of the policy’s surrender value, depending on whether the policy is an endowment plan or a ULIP.
- Interest rates: Rates are usually lower than unsecured loans and may be charged at a fixed or variable rate, based on lender terms.
- Interest calculation: Interest accrues only on the outstanding loan amount, not on the sanctioned limit.
- Repayment flexibility: You can repay interest periodically or allow it to accumulate and get adjusted against maturity or death benefits.
- Impact on benefits: Any unpaid loan balance and interest are deducted from the final payout, reducing maturity or claim proceeds.
Types of LIC Policies Eligible for Loan
Not all LIC policies qualify for loans. Eligibility depends on whether the policy has built sufficient surrender value and meets lender-specific criteria.
Commonly eligible LIC policies include:
- Endowment policies: Traditional savings-oriented policies that build surrender value over time and are widely accepted for loans.
- ULIPs (Unit Linked Insurance Plans): Market-linked policies where loans are offered against the fund value, subject to minimum lock-in periods.
- Paid-up policies: Policies that are no longer receiving premiums but continue to hold surrender value may also qualify.
Important exclusions:
- Pure term insurance plans do not qualify, as they carry no surrender value.
- Policies that have not completed the minimum premium-paying period are generally ineligible.
Loans against eligible policies issued by Life Insurance Corporation of India offer a convenient way to access funds without giving up long-term insurance protection.
What documents are required to avail loans against LIC policy?
Here is what you will need:
- Filled loan application form
- Original ULIP or endowment policy
- Valid ID proof (Aadhaar, PAN, Passport)
- Address proof
- Cancelled cheque
- Latest premium payment receipts
Loan against LIC policy vs other loan types
Below is the comparison between loan against LIC policy and other loan types
| Feature | LIC policy loan | Other loans |
| Collateral | Yes – ULIP/endowment | No |
| Interest rate | Lower | Higher |
| Credit score needed | Not mandatory | Required |
| Loan amount basis | Based on surrender value | Based on income |
| Repayment flexibility | High | Moderate |
LIC policy loan vs loan against securities
Compare insurance-based loans with those against shares or mutual funds to make an informed choice.
| Feature | LIC policy loan | Loan against securities |
| Collateral | ULIP or endowment policy | Shares, mutual funds |
| Interest rate | Lower | Can be variable |
| Loan amount | Up to 80% of value | Up to 50% |
| Market risk | None | Yes |
| Credit score needed | Not required | Not required |
How to repay loans against LIC policy?
Explore easy repayment options, from instalments to lump sum or claim-based settlement.
- EMIs – Pay back the loan in instalments.
- Lump sum – Repay the entire amount any time before policy maturity.
- Claim adjustment – If unpaid, the balance is deducted from the final maturity or death benefit.
Final thoughts
A loan against your ULIP or endowment policy is a smart way to unlock quick funds without disturbing your life cover. It’s cheaper than personal loans, and far more flexible. Just remember repaying on time protects your policy benefits. If you're looking for low-cost funds with minimal hassle, this is an option worth considering.
Have a ULIP or endowment plan? Do not let it sit idle. Get a loan of up to 80% of its surrender value today. Apply now
