Why Opt for a Loan Against LIC Policy?

Have you ever found yourself in sudden need of funds, perhaps for medical emergencies, education, or a business opportunity, but did not want to break your long-term investments? A loan against your LIC policy could be the ideal solution. This secured loan allows you to borrow funds against the surrender value of your existing life insurance policy. It offers quick liquidity without the stress of selling or surrendering your policy prematurely. Essentially, you get the financial flexibility you need while your policy continues to stay active and earn returns.

Need urgent liquidity without losing your insurance coverage? Apply for a loan against your insurance policy and unlock funds instantly.

A loan against an LIC policy is a type of secured loan where your life insurance policy serves as collateral. Instead of liquidating your investments or breaking your savings, you can borrow a percentage of your policy’s surrender value. This option is available for policyholders who have built up a reasonable surrender value, typically through the regular payment of premiums for at least three years in traditional (endowment) or ULIP policies.

The loan amount is disbursed quickly, as lenders already have the policy as security, reducing documentation and approval delays. The policy remains active throughout the loan tenure, ensuring your financial protection continues.

Life Insurance Corporation of India (LIC) offers a variety of insurance policies that cater to different financial goals such as savings, investments, and life coverage. Several of these policies also come with a surrender value, making them eligible for securing a loan against their policy. By availing a loan against an eligible insurance policy, you can meet your financial requirements without surrendering the policy or losing its benefits. Here is a breakdown of the types of LIC policies typically eligible for loans: 

1. Endowment life insurance policies: Endowment policies combine life insurance coverage with savings. A portion of the premium is allocated towards risk cover, while the remaining acts as savings, earning a return over time. These policies usually acquire a surrender value after a specific number of years – making them a suitable option for availing loans.
2. Whole life insurance policies: These policies provide coverage for the entire lifetime of the insured (up to 100 years usually). Over time, they accumulate cash value, and borrowers can pledge these policies to avail loans. Whole life policies are preferred for loans due to their long-term nature. 

3. Unit-linked insurance plans (ULIPs): ULIPs are market-linked life insurance policies that combine investment and insurance benefits. They acquire a surrender value after the lock-in period of 5 years and can be used to secure a loan. However, the extent of the loan amount depends on the fund value and surrender value of the policy. 

4. Money-back policies: Money-back policies provide periodic payouts during the policy term, apart from life cover and maturity benefits. These policies accumulate surrender value over time, making them eligible for loans upon meeting the required conditions. 

5. Children's insurance plans: Insurance policies specifically designed to safeguard your child’s future can also be eligible for a loan, provided they have a surrender value and meet the lender’s criteria. These policies are advantageous as they help cover urgent financial needs while remaining intact to secure a child’s education or future expenses. 

6. Traditional life insurance policies with maturity benefits: Any traditional LIC policy offering maturity benefits and having a surrender value can be used as collateral for a loan. It is crucial to ensure that you meet the tenure eligibility so that the policy has accrued sufficient funds for borrowing purposes.

Things to remember when using LIC policy for loans

• The selected LIC policy should have a surrender value, as loans cannot be availed against term insurance or policies without a cash value.
• It is essential to keep paying the premiums on the policy to avoid losing insurance coverage.
• The loan amount generally depends on the surrender value and the terms defined by the lending institution. Usually, the loan amount can be a percentage of the surrender value.
  By understanding the above types of LIC policies, you can determine if your policy is eligible for a loan and use it judiciously for your financing needs. Make sure to check the terms and conditions of your insurance policy and consult your lender before applying for a loan against your policy.

To qualify for a loan against your LIC policy, you must meet specific eligibility criteria. These requirements ensure the policy’s financial worth and your repayment ability are adequately assessed. Key eligibility conditions include:

• Policy value available: The policy must have built-up value (i.e., has acquired a policy value or surrender value).
• Loan limit: You can borrow up to 80% of that policy value. 
• Policy status: The policy should be active, not lapsed.
• Ownership: You must be the owner of the policy (or, in the case of joint ownership, follow the insurer’s guidelines).
• Lock-in policies may be accepted: Even policies in their lock-in phase (e.g. first few years) may be eligible for such a loan

Meet the simple eligibility criteria and get a loan against your insurance policy without lengthy paperwork or approvals.

The amount you can borrow depends on the surrender value of your LIC policy, not the total sum assured. The surrender value is the amount payable if you choose to discontinue your policy before maturity. Most lenders provide up to 80% of the surrender value as a loan. For example, if your policy’s surrender value is Rs. 10 lakh, you could typically borrow Rs. 8 to 9 lakh. Your eligibility might also vary based on the type of policy, endowment, or ULIP, as ULIPs fluctuate with market performance, affecting the loanable amount. This system ensures you can access funds quickly while your insurance protection remains intact, offering a balance between liquidity and security.

Interest rates for loans against LIC policies are generally lower compared to personal loans or credit cards because they are secured by the policy’s surrender value. Here are a few pointers to understand how rates work:

• Linked to policy type: Traditional policies usually attract stable, fixed rates, whereas ULIP-based loans may vary slightly due to market-linked returns.
• Range of rates: Typically, interest rates fall between 8% and 24% per annum, depending on the insurer’s terms and tenure.
• Payment flexibility: You can choose to pay only the interest during the loan term and repay the principal at maturity.
• Automatic adjustment: If repayments are delayed, the unpaid interest can be adjusted against the policy’s surrender value.

This setup makes loans against LIC policies an affordable and convenient financing option for emergencies or planned expenses.

A loan against an LIC policy offers several key benefits that make it an attractive financial tool for managing liquidity needs without compromising long-term goals. Major advantages include:

• Fast disbursal: As the policy is already held, processing is quicker than a fresh unsecured loan.
• Up to 80% funding: You can unlock a high proportion of your policy value without surrendering it.
• Lower risk to you: Since it’s secured, there is minimal risk of being rejected based on credit history.
• Policy remains intact: Your life cover and associated benefits continue even after borrowing.
• Interest only on balance: You pay interest only on what you’ve borrowed and not on unused limits.
• No income proof needed: Your policy value serves as security, so lenders often skip demanding detailed income documents.

Applying for a loan against your LIC policy is a simple and straightforward process. The steps can be completed online or offline, depending on your preference. Follow these steps:

1. Check if policy is eligible: Confirm that your policy has sufficient policy value.
2. Access application portal: Visit the insurer’s loan-against-policy card/portal or branch.
3. Fill the application form: Provide policy number, desired loan amount up to 80%, nominee, and contact details.
4. Submit KYC and policy documents: Upload or submit identification, address proof, and original policy document.
5. Verification and approval: The insurer evaluates the current policy value and verifies documents.
6. Disbursement: Funds are typically transferred to your linked bank account within a few working days.

This streamlined route means you can often get the required funds quickly, without complex underwriting.

Get hassle-free access to funds with a loan against your insurance policy, quick, simple, and fully secure.

Lenders require basic documentation to verify your identity, ownership of the policy, and bank details. Essential documents include:

• Completed application form for the loan
• Original LIC policy document
• PAN or any one of the Offically Valid Documents (Aadhaar, Passport, Driving License, Voter ID Card, Letter issued by National Population Register, NREGA job card,)
• Recent passport-size photographs
• Bank account details or a cancelled cheque for disbursal

Once these are submitted, lenders typically process the loan in 24–48 working hours*, making it one of the most convenient secured loan options available.

Life Insurance Corporation (LIC) policyholders who have taken loans against their policies can benefit from several repayment options tailored to their needs. Below are key details about the repayment methods and guidelines for LIC policy loans:

1. Lump-sum repayment

• Policyholders can repay the entire loan amount along with accrued interest in a single payment.
• Ideal for those with sufficient funds who want to clear liabilities quickly.

2. EMI-based repayment

• Repay the loan through Equated Monthly Installments (EMIs).
• Borrowers can pay both the principal and interest in fixed monthly installments, making repayment manageable.
• Perfect for individuals with steady income sources.

3. Partial repayment

• Option to pay off a portion of the loan amount.
• Reduces the overall principal, which consequently minimizes future interest accumulation.
• Suitable for those with limited funds who want to reduce their debt burden gradually.

4. Repayment upon policy maturity

• If the loan is not repaid during the policy term, the outstanding loan amount is deducted from the maturity benefits.
• Applicable for policies nearing maturity, ensuring the loan is repaid without additional effort from the borrower.

5. Repayment upon claim settlement

• For death claims, the loan balance is adjusted against the death benefit payout.
• Beneficiaries receive the residual amount after loan deductions.

6. Interest-only payments

• Borrowers can opt to pay only the interest component periodically while retaining the principal amount.
• Helps reduce immediate financial pressure while keeping the policy active.

7. Flexible repayment terms

• LIC may allow flexibility in repayment terms depending on the policyholder’s financial situation and loan conditions.
• Customizable solutions can be discussed directly with LIC representatives.

Key considerations for loan repayment:

• Interest rate: LIC policy loans typically have attractive interest rates, but timely repayment is essential to avoid accumulation.
• Policy continuation: Ensure timely repayments to keep the policy active and avoid lapses.
• Loan term impact: The repayment method opted can influence the benefits received at maturity. By understanding these repayment options, LIC policyholders can effectively manage their policy loans without jeopardizing their life insurance benefits. Always consult LIC or your financial advisor to choose the most suitable repayment strategy for your needs.

Opting for a loan against your LIC policy can be a wise financial move when you need quick funds without breaking long-term investments. It offers a balanced mix of liquidity, security, and affordability. You get immediate access to funds while your life cover stays intact. Whether for medical emergencies, education, or personal commitments, this type of loan ensures that you do not have to compromise your future savings or insurance benefits. So, the next time you wonder “Why should you opt for a loan against LIC policy?”, remember that it provides instant liquidity, low interest, and continued coverage all without the stress of new documentation or credit checks.

Need quick funds while keeping your life cover active? Apply for a loan against your insurance policy and unlock your policy’s value today.