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
06-April-2025

Understanding loans against life insurance

A loan against a life insurance policy is a secured credit option where the surrender value of your policy acts as collateral. Instead of pledging physical assets like property or gold, you assign your policy to the lender. This type of loan is ideal for individuals who may not want to risk their assets or lack tangible collateral. It usually comes with simpler eligibility criteria and lower interest rates compared to unsecured loans. Since the policy’s cash value secures the loan, approvals are faster and documentation requirements are minimal.

Benefits of availing a loan against insurance policy

Following are the different benefits individuals can enjoy by opting for this loan:

  • Easy eligibility requirements
    As the loan against a life insurance policy is a collateralised credit facility, it is not as risky as unsecured credit facilities. Therefore, lenders determine relatively lenient eligibility criteria for this loan.
  • Low rate of interest
    Instead of taking an unsecured loan like a personal or business loan, people can opt for a loan against a life insurance policy to keep their borrowing costs down. This is because it can help them secure credit assistance with a lower interest rate. It will reduce their burden of outgoing interest to a large extent.
  • Substantial loan amount
    Borrowers in need of large-ticket financial assistance can go with this credit facility. Lenders can offer a loan amount of up to Rs. 25 crores, which however, may vary across financial institutions.
    In this regard, borrowers also need to keep in mind that the maximum loan amount that they are eligible for depends solely on the surrender value of their insurance plan.
  • Long and flexible tenure
    The loan against life insurance policy comes with the facility of an extensive tenure, which, can go up to 96 months, which can vary from lender to lender.
  • End-usage free credit
    The loan extended by the lending institutions comes without any restraint of end usage. Borrowers receive the loan amount in their savings account directly. They are free to use the loan amount for their personal use.

A loan against a life insurance policy is not a conventional type of loan but being a collateralised credit facility, it can help individuals to meet their credit requirements.

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

Eligibility criteria may not be the same across all lending institutions in India. However, the following criteria must be satisfied by applicants for a loan against a life insurance policy:

  • Their age should ideally be within the range of 18 years to 90 years.
  • They must be an Indian citizen
  • Both salaried and self-employed individuals can get the credit
  • Any other criteria as may be stipulated by a lender.

Which type of life insurance policies can individuals pledge?

Individuals can avail loan by assigning a life insurance policy in which there is a surrender value. Generally, individuals get the surrender value after a definite period of 3 years. Therefore, before applying for this loan, individuals need to ensure that their policies have been completed within this time frame. Here are the common types of policies you can pledge:

  1. Whole life insurance: This policy offers lifelong coverage and gradually builds cash value. The accumulated value becomes eligible for borrowing after a few years.

  2. Endowment policy: It provides a mix of insurance and savings benefits. These policies accrue a surrender value that can be pledged after a set period.

  3. Money-back policy: These policies offer periodic returns during the policy term. The remaining cash value, if sufficient, can serve as collateral for a loan.

  4. Unit Linked Insurance Plan (ULIP): A ULIP combines market-linked investment with life cover. After the five-year lock-in, the fund value may be used to secure a loan.

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

Applying for a loan against your life insurance policy is a streamlined process designed for convenience and quick access to funds. Below is a detailed, step-by-step guide to help you navigate the application:

Step 1: Initiate your application
Visit the lender’s official Loan Against Insurance Policy page and click on the ‘Apply’ button to begin the online application process.

Step 2: Provide personal details
Enter your full name, date of birth, PAN number, and other required personal information. Ensure all details match your official documents to avoid any discrepancies.

Step 3: Verify your email address
Input your email ID and complete the verification process. This step is crucial for receiving important communications regarding your loan application.

Step 4: Submit insurance policy details
Provide comprehensive information about your life insurance policy, including the policy number, type (such as endowment or ULIP), insurer's name, and the current surrender value. This information helps in assessing your loan eligibility.

Step 5: Receive a personalized loan offer
Based on the details provided, lender will evaluate your policy's eligibility and generate a customized loan offer tailored to your financial needs.

Step 6: Complete KYC verification
Upload the necessary documents for Know Your Customer (KYC) verification. Required documents typically include:

  • A recent passport-sized photograph

  • Government-issued ID proof (e.g., Aadhaar card, passport, or voter ID)

  • PAN card

  • Insurance policy document

  • Bank account proof (such as a bank statement or a cancelled cheque)

Step 7: Set up E-mandate for repayments
Register an E-mandate to facilitate automatic deductions for loan repayments from your bank account, ensuring timely payments and avoiding defaults.

Step 8: Accept the loan agreement
Carefully review the loan terms and conditions presented in the agreement. Upon agreement, provide your digital consent to proceed with the loan sanctioning process.

Step 9: Assign your insurance policy
Assign your life insurance policy as collateral for the loan. This step is essential to secure the loan amount against your policy's surrender value.

Step 10: Disbursal of loan amount
After successful verification and completion of all formalities, the approved loan amount will be disbursed to your registered bank account, typically within 24 hours to 48 hours.

Which documents are necessary for availing the Bajaj Finance loan against a life insurance policy?

Individuals can avail the loan against life insurance policy by submitting the following documents:

  • One copy of your recent photograph

  • Aadhaar card/ passport/ voter's ID as address proof

  • PAN card

  • Insurance policy document

  • Bank account statement/ copy of a cheque as bank account proof

  • Any other document as may be required by Bajaj Finance Ltd.

**Please note that the list of documents mentioned here is indicative. You will be notified on the complete list of documents required by our representative while filling the application form.

Individuals do not need to provide many documents while applying for a loan against a life insurance policy. It reduces the time and hassle of arranging documents. Further, the overall application process is also accelerated significantly.

Besides this, there are also several other benefits of a loan against an insurance policy.

Things to know before applying for a loan against a life insurance policy

Before applying for a loan against a life insurance policy, several important factors must be considered:

Eligibility

Individuals, Hindu Undivided Families (HUFs), and sole proprietorships are eligible to apply for a loan against a life insurance policy.

Interest charged

The interest rate for such loans is generally linked to the base rate of the policy and the premiums paid, which means it can vary based on the terms of the policy.

Documentation

To apply for the loan, you will need to submit a completed application form, original policy documents, a deed of assignment, and any additional paperwork as required by the lender.

Repayment of loan

It is essential to repay the loan on time during the policy’s term to prevent the policy from lapsing. Borrowers can opt to repay either only the interest or both the principal and interest, depending on their financial situation.

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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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