Loan Against LIC Policy: Interest Rates and Benefits Explained

Need urgent funds but don’t want to break your investments? If you own a LIC policy with a decent track record of premium payments, you may not need to look far. A loan against your LIC policy offers a smart, quick, and secure way to raise funds, without selling off your assets or going through a lengthy approval process. This guide explains everything you need to know about interest rates, eligibility, repayment terms, and tools like the LIC loan calculator to help you make an informed decision.

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What is a loan against LIC policy? 

A loan against a LIC policy is a secured loan offered by LIC or authorised lenders, using your life insurance policy as collateral. This means the loan amount is given against the surrender value of your policy, and your policy continues to offer life cover as long as you pay the premiums and loan dues.

Key points to understand:

• You must have a traditional policy (like endowment or whole life plans).
• The policy must have completed at least 2–3 years of premium payments.
• The loan can typically be up to 80% of the surrender value.
• It is useful for short-term or emergency needs without affecting your long-term insurance plan.

Current interest rates for loans against LIC policies 

Interest rates on loans against LIC policies can vary based on whether you’re borrowing directly from LIC or through a financial institution. These rates are usually lower than unsecured personal loans since the insurance policy acts as security.

Here’s a general overview of current rates:

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Eligibility criteria for availing a loan against LIC policy 

To apply for a loan against insurance policy, you must meet some basic criteria set by LIC or the lending institution. These include:

• The policy must be a traditional plan (not term or annuity-based).
• You must have paid premiums for at least 2 or 3 full years.
• The policy must have a surrender value available.
• The policy should be in your name, or you must be the legal nominee/assignee.
• Some lenders may require you to assign the policy in their favour during the loan period.

How to apply for a loan against LIC policy: Step-by-step guide 

Applying for a loan against your LIC policy is quite straightforward, especially if the policy is already in force and has completed the minimum premium-paying period.

Here’s how you can do it:

1. Check the surrender value of your LIC policy through your LIC agent, policy document, or online portal.
2. Fill in the loan application form – either on the LIC website or the lender’s platform.
3. Submit required documents such as ID proof, policy bond, and a cancelled cheque.
4. Assign your policy to the lender by signing the required forms (done once).
5. Get the loan disbursed, often within 24–48 hours* of approval.

Calculating your loan amount: Understanding surrender value 

The surrender value is the amount payable by LIC if you choose to terminate the policy before its maturity. This value depends on:

• Number of years the premiums have been paid
• Policy type (ULIP, endowment, etc.)
• Bonus additions (if any)

Typically, you can get up to 80% of the surrender value as a loan. For example, if your policy’s surrender value is Rs. 2 lakh, you may get a loan of up to Rs. 1.7 to 1.8 lakh.

The more premiums you've paid, the higher your surrender value and in turn, the higher your eligible loan amount.

Loan against LIC policy calculator 

A LIC loan calculator or loan against LIC policy calculator helps you estimate how much you can borrow and what your interest payout might look like. It simplifies decision-making by showing:

• Eligible loan amount based on surrender value
• Applicable interest rate
• Total interest payable

Monthly repayment schedule (if applicable)

 

(When you take a loan against a LIC policy, repayment is flexible:

• You can repay only the interest regularly and settle the principal later.
• Or, you can choose to repay both interest and principal through EMIs.
• Loan tenure usually ranges from 6 months to the remaining term of the policy.
• If the loan is unpaid and the policy matures or is surrendered, the outstanding amount is deducted from the maturity/surrender value.

There’s usually no strict EMI structure unless you opt for a structured repayment plan via a private lender.

Advantages of taking a loan against your LIC policy

Here’s why this type of loan is considered safer and more cost-effective:

• Quick disbursal with minimal documentation
• Lower interest rates compared to unsecured loans
• No credit score check required
• You continue to enjoy insurance cover
• Flexible repayment options
• Helps during emergencies without affecting long-term investments

This makes it a reliable source of funding for urgent needs like medical expenses, education fees, or business capital.

Risks and considerations before availing the loan

While loans against LIC policies are secure, there are a few points to be aware of:

• If premiums are not paid, the policy may lapse, affecting your loan.
• Unpaid loan amounts are deducted from death or maturity benefits.
• Not all policies are eligible—term plans and annuities are usually excluded.
• Early surrender of the policy could result in a lower loan value or additional charges.

Always check the terms of your policy and speak to your insurer or lender before applying.

Comparing loan against LIC policy with other loan options

Here’s how loans against LIC policies stack up against other common loan types:

Conclusion

A loan against your LIC policy can be a smart, secure, and cost-effective solution when you need funds quickly. With competitive interest rates, simple eligibility, and fast processing, it allows you to borrow without giving up your long-term life cover or investments. However, like any financial product, it’s important to understand the terms, use tools like the loan calculator, and plan your repayments responsibly.

Have a ULIP or endowment policy? Apply for a loan against insurance policy and get access to funds without compromising your life cover.