How Does Loan Against Insurance Policy Work?

A loan against insurance policy is one of the simplest ways to access funds during financial emergencies without breaking existing investments. Instead of surrendering your policy and losing long-term benefits, you can borrow against its surrender value and repay conveniently. It offers quick access to liquidity, continues your insurance coverage, and allows you to retain policy ownership. Whether you face a sudden medical need, business cash crunch, educational expenses, or short-term investment goals, this option helps you fund requirements without selling assets or affecting your savings plan. 

Get instant funds by pledging your insurance policy without losing its benefits. Apply for a loan against insurance policy 

A loan against an insurance policy is a secured loan that allows you to borrow against the surrender value of your life insurance policy. Because your insurance acts as collateral, lenders offer quicker processing, lower interest rates, and flexible repayment. A life insurance policy loan refers to borrowing money against eligible policies, such as ULIPs or endowment plans that have accumulated value (surrender value). Instead of surrendering the policy, you continue to enjoy insurance coverage while using the borrowed funds as needed. 

Only certain insurance plans qualify because they generate a surrender value. These include: 

• ULIPs (Unit Linked Insurance Plans) – Policies offering both insurance and market-linked returns. 
• Endowment Policies – Traditional plans that combine savings and life cover. 

Note: Pure term insurance policies are generally not eligible because they do not have a cash value. 

To understand how loan against an insurance policy works, think of your policy as a financial asset. Over time, your insurance plan accumulates a surrender value. This value determines how much you can borrow. The borrower submits the policy documents and completes the loan application. The insurer confirms the surrender value and assigns the policy to the lender as collateral and the lender approves the loan based on its value. Meanwhile, you continue paying premiums and enjoying insurance cover. 

The loan amount, interest, and repayment schedule are communicated upfront. Once the loan is repaid, the lender approves the repayment, restoring complete ownership rights over the policy. You can also prepay or close the loan anytime, depending on lender's guidelines. 

Need funds without breaking your investments? Choose a loan against insurance policy. 

Borrowers must meet specific requirements before availing this facility: 

• The policy must be a ULIP or endowment plan with surrender value. 
• Minimum number of premiums must be paid (varies by policy). 
• The policy must not lapse, and premiums should be up to date. 
• The borrower must be the policyholder and legally eligible to assign the policy. 
• Age of applicant as per insurance rules and lender conditions. 

A loan against policy offers several advantages: 

• Quick access to funds without complex loan eligibility checks. 
• Lower interest rate compared to unsecured loans. 
• No need to surrender your insurance policy. 
• Flexible repayment options, including part-payment. 
• Continued insurance coverage even after taking the loan. 
• You can use the funds for various needs such as business, medical bills, etc. 

Although beneficial, one must understand essential risks: 

• Loan value depends only on surrender value, not the policy’s total value. 
• Failure to repay can affect policy benefits, including death benefits. 
• Interest accumulates, increasing the liability over time. 
• Policy may be forfeited if unpaid dues exceed the surrender value. 
• Regular premiums are still compulsory to keep the policy active. 

Here is how you can apply for a policy loan easily: 

Step 1: Begin by selecting the ‘Apply’ option on the application page. 

Step 2: Fill in your basic personal information, including your name, PAN, date of birth, and other required details. 

Step 3: Enter and verify your email address to proceed. 

Step 4: Provide your insurance policy details so that a customised loan offer can be created for you. 

Step 5: The lender will assess your policy’s eligibility and generate a personalised loan offer based on its value. 

Step 6: Complete the KYC verification process to receive your sanction letter. 

Step 7: Set up an e-mandate to enable automatic EMI payments. 

Step 8: Review and accept the loan agreement to give consent for sanction and disbursement. 

Step 9: Submit your insurance policy documents for final evaluation and loan amount confirmation. 

Step 10: Once the verification is complete, the approved loan amount will be transferred to your bank account. 

Interest differs based on the policy type and lender guidelines: 

• Interest is charged on the outstanding loan amount. 
• Rates may vary for ULIPs  
• Additional charges may apply for processing or overdue payments. 
• Interest may be compounded periodically (monthly). 
• Prepayment may or may not carry charges, depending on policy terms. 

You can repay the borrowed amount in multiple ways: 

• Interest-only installments, with principal repaid later. 
• Part-payments to reduce the overall interest burden. 
• Foreclosure option to pay the loan early in one go. 
• Automatic adjustment of policy benefits if the borrower fails to repay (may reduce maturity or death benefit). 

Loan against insurance policy is a smart and reliable way to raise funds without breaking long-term investments. By pledging your ULIP or endowment policy, you can secure quick access to liquidity, continue enjoying insurance benefits, and repay flexibly. It works well for individuals who want disciplined financial planning while ensuring access to funds when required. 

Secure funds quickly by pledging your ULIP or endowment policy. Apply for a loan against insurance policy