How To Avail Loan Against A Life Insurance Policy

Find out more about the eligibility criteria, the application process, and the advantages of a loan against your life insurance policy.
How To Avail Loan Against A Life Insurance Policy
3 mins
29-May-2025

Need quick funds but don’t want to dip into your savings or sell assets? Here's a smart alternative a loan against life insurance policy. It’s a lesser-known yet highly effective way to raise emergency funds without giving up your long-term financial protection. By simply pledging your existing life insurance policy, you can unlock a world of secure loans with flexible borrowing options. And the best part? You still retain your policy benefits while getting the liquidity you need, right when you need it.

Let’s walk you through how it works and why it might just be the most underrated borrowing option out there.

Understanding loans against life insurance

When you opt for a loan against insurance, you're essentially unlocking the hidden value in your life insurance policy the surrender value. This value represents the amount your insurer would pay if you chose to terminate your policy early. Instead of selling valuable assets or turning to high-interest unsecured loans, you can borrow against this surrender value.

This form of borrowing is considered a secure loan, as your policy acts as the collateral. It typically involves minimal paperwork, quicker processing, and lower interest rates. And since your policy is pledged with the lender or insurance company, there's usually no requirement to offer any additional security. In short, you are turning your long-term protection plan into a short-term liquidity solution without sacrificing either.

Why break your investments when your life cover can help you borrow smartly? Get liquidity without letting go of your long-term plans. Apply now

Benefits of availing a loan against insurance policy

Here’s why thousands of individuals choose this borrowing method when they need funds urgently, but don’t want to compromise their financial stability:

  • Easy eligibility: Since your life insurance policy is the main criteria, lenders don’t dig too deep into your income or credit profile. Salaried or self-employed your policy’s surrender value does most of the talking.
  • Lower interest rates: These secure loans come with significantly lower interest rates than unsecured options like personal loans, helping you manage repayments more easily.
  • Higher loan amounts: Based on the type of policy and its surrender value, you may be eligible to borrow up to 90% of that value making it ideal for larger financial requirements.
  • Flexible repayment tenure: Repayment terms often range from a few months to up to 96 months, offering you enough room to structure EMIs as per your income.
  • No end-use restrictions: The funds can be used however you choose be it for a family emergency, child’s education, medical expenses, or expanding your business.
  • Collateral-free in the conventional sense: There's no need to pledge physical assets like gold or property. Your insurance policy is enough to secure the loan.

Need Rs. 10 lakh or more but don’t want to risk your assets? Tap into your policy’s value and borrow on your terms. Apply now

What are the eligibility criteria for taking a loan against a life insurance policy?

Thinking about using your life insurance policy to raise quick funds? The good news is that eligibility criteria for a loan against life insurance policy are usually straightforward and inclusive. While specific requirements can vary depending on the lender or insurer, most follow these broad conditions:

  • Age: You must be at least 18 years of age at the time of application. Some lenders are even open to granting loans up to the age of 90, depending on the policy and repayment plan.
  • Nationality: You should be an Indian resident. This applies to both salaried and self-employed individuals across the country.
  • Occupation: Whether you draw a monthly salary or run your own business, your occupation is rarely a barrier. Since the loan is secured by your insurance policy, lenders are typically more relaxed about income proof or employment history.
  • Policy tenure: Your life insurance policy must have completed a minimum duration usually three premium-paying years and must have accrued a surrender value. Without this value, your policy may not qualify as security.
  • Quick tip: ULIPs and term plans without surrender value typically won’t qualify. Double-check your policy before applying.

Which type of life insurance policies can individuals pledge?

When it comes to applying for a loan against life insurance policy, not all policy types are equally eligible. Some are designed to build surrender value over time and these are the ones lenders accept as collateral. The type of policy you hold plays a crucial role in determining your eligibility and the amount you can borrow. Here’s a breakdown of the types of life insurance policies that typically qualify:

  • Endowment policies – These are traditional savings-oriented insurance plans that offer both insurance coverage and guaranteed maturity benefits. Since they accumulate a cash value over time, they are widely accepted for loans.
  • Whole life insurance policies – These long-term policies offer coverage for the insured's lifetime and build up substantial value as premiums are paid over the years. Their steady growth makes them suitable for pledging.
  • Money-back policies – Even though these plans return a portion of the sum assured at regular intervals, the remaining policy value still accumulates. As long as there’s sufficient surrender value, they’re eligible for loans.
  • ULIPs (Unit Linked Insurance Plans) – These hybrid plans combine insurance with investment in market-linked instruments. After the mandatory 5-year lock-in period, the accumulated fund value can be used to avail of a loan.

Already paying for a long-term policy? Make it work double for protection and liquidity. Apply now

Step-by-step guide to applying for a loan against your life insurance policy

Here’s how you can apply for a loan against life insurance policy in just a few clicks:

  1. Visit the lender’s website - Start by going to the official website of your lender. Look for the Loan Against Insurance section it’s usually listed under secured or insurance-backed borrowing options.
  2. Click on 'Apply Now'- Ready to begin? Just click on the ‘Apply Now’ button. This launches your digital loan application and takes you to the next step in just a few seconds.
  3. Enter your mobile number - Key in your active mobile number. You’ll receive a one-time password (OTP) for verification. This simple step ensures your application is secure and tied to your identity.
  4. Fill in your personal details - Next, you will be asked to enter basic information like your name, date of birth, residential address, and employment type. This helps the lender understand your profile better.
  5. Select ‘Life Insurance Policy’- Now it’s time to tell the lender which policy you want to pledge. Enter the name of your insurance provider and the specific policy number. Make sure the policy has a valid surrender value and is in force.
  6. Submit and wait for approval - Once all your details are filled in, submit the application. If everything checks out, the loan is usually approved quickly and in many cases, the funds are credited to your account within 24 to 48 hours.

Conclusion

When life throws financial surprises your way, don’t panic act smart. A loan against life insurance policy is one of the most flexible, fast, and affordable ways to raise funds without disrupting your financial security. Whether it’s for emergency funds, a business push, or personal milestones, this form of collateral-free borrowing puts your existing investment to good use while you continue to enjoy the protection your policy offers. If you have a life insurance plan with a decent surrender value, you might already have the key to your liquidity needs in your hands.

Why let your insurance policy sit idle? Leverage it today for instant liquidity with zero stress. Apply for loan against insurance policy now

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Frequently Asked Question

Can you take a loan against a life insurance policy?

Yes, you can take a loan against your life insurance policy. This type of loan, known as a policy loan, allows you to borrow against the cash value of your policy. It offers quick disbursal, lower interest rates compared to other personal loans, and flexible repayment options.

Can I take a loan against a LIC policy?

Yes, you can take a loan against your LIC policy. This type of loan, known as a policy loan, allows you to borrow against the cash value of your policy. It offers quick disbursal, lower interest rates compared to other personal loans, and flexible repayment options. However, it's important to be aware that outstanding loan amounts reduce the death benefit payable to your nominees.

How much loan can I get on my insurance policy?

With Bajaj you can get a loan against insurance policy starting at Rs 10,000 and maximum of up to Rs. 25 crore. Get loan of up to 90% on policies against surrender value.

What types of life insurance policies are eligible for a loan?

Loans are typically offered against traditional life insurance policies like endowment and ULIP policy with a surrender value; term plans usually don’t qualify.

What is the interest rate on a loan against a life insurance policy?

Interest rates generally range up to 24% per annum, depending on the insurer and policy terms. The rate is often lower than personal loan options.

Is my insurance policy still active after taking a loan against it?

Yes, your policy remains active as long as you continue paying premiums and meet the loan repayment terms. Non-repayment may impact benefits or cause policy lapse.

What happens if I fail to repay the loan?

If unpaid, the insurer may deduct the outstanding amount and interest from the policy’s surrender value or maturity/death benefits, or even forfeit the policy in some cases.

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