If you have been paying premiums on your LIC policy for a few years, you might be sitting on a hidden financial cushion. That is right, your life insurance policy can help you unlock instant funds during emergencies without letting go of your investment. But how much loan can you get on a LIC policy? What are the terms, benefits, and risks involved? Let us break it down in simple terms.
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Understanding loan against LIC policy
A loan against a LIC policy is a secured loan, meaning your life insurance policy is used as collateral. It allows you to borrow money from your insurer or lending partner by pledging the policy’s surrender value. The surrender value is the amount you would receive if you decided to discontinue the policy before its maturity.
So, instead of surrendering your policy and losing long-term benefits, you can borrow a certain percentage of this surrender value as a loan. This option comes in handy when you need funds for unexpected expenses—medical emergencies, education fees, or short-term business needs.
Eligibility criteria for loan against LIC policy
Before applying for a loan against your policy, it’s important to check if your policy qualifies. Here are the basic eligibility requirements:
- The policy must have acquired a surrender value, which typically happens after 2-3 years of regular premium payments.
- Only certain policy types are eligible, such as traditional life insurance plans like ULIPs and endowment policies.
- The policy must be active, i.e., premiums are paid up-to-date.
- The loan applicant must be the policyholder or have the right to pledge the policy.
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Maximum loan amount based on policy type
The loan amount you can get depends largely on the surrender value of your policy and the type of insurance plan. Here is a quick view:
| Policy type | Loan-to-Value (LTV) ratio | Maximum loan amount |
|---|---|---|
| ULIP (Unit Linked Insurance Plan) | Up to 80% of surrender value | Based on fund value and tenure |
| Endowment policy | Up to 80% of surrender value | Based on accrued bonuses and premiums paid |
| Term insurance | Not eligible | Not applicable |
| Money-back/Whole life plans | Case-specific | May not always be accepted as collateral |
So, how much loan can we get from LIC policy? If it’s a ULIP or endowment plan with a surrender value of Rs. 1,00,000, you may be eligible for a loan of up to Rs. 90,000.
Interest rates for loans against LIC policies
Interest rates for loans against LIC policies can vary based on the lender and policy type. LIC itself may offer slightly lower rates compared to private lenders, but third-party lenders, offer faster approvals and flexible repayment terms.
| Lender | Interest rate (Approx.) |
|---|---|
| LIC of India | 9% – 11% p.a. |
| Bajaj Finserv | Competitive market-linked rates |
| Banks/NBFCs | 10% – 14% p.a. |
Interest is usually charged only on the outstanding amount, and you can repay it flexibly. But it is important to pay the interest regularly to avoid policy lapse or reduction in final benefits.
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Documents required to avail loan against LIC policy
To apply for a loan against insurance policy, you will need to submit a few basic documents. Here’s a quick checklist:
- Copy of the insurance policy document (ULIP or endowment policy)
- KYC documents: Aadhaar, PAN card, or any government-issued ID
- Bank account details for disbursal
- Loan application form (as per lender's format)
- Assignment form: The policy is assigned in favour of the lender until repayment
The documentation is minimal, and some lenders even offer 100% digital application journeys.
