LIC Policy Loan Calculator: Interest Rates, Eligibility and Repayment

A LIC policy loan calculator is a tool that helps estimate the amount you may be able to borrow against an eligible life insurance policy and the associated interest or repayment obligations. It is useful for comparing a potential loan with your available budget before applying.

The calculator may use inputs such as:

• Policy surrender value
• Proposed loan amount
• Annual interest rate
• Repayment period
• Repayment method, where supported

The results are estimates. The final sanctioned amount, interest rate, fees and repayment schedule depend on the insurer's policy conditions or the lending institution's approved terms.

A calculator cannot establish eligibility solely from the policy's sum assured. The surrender value and the applicable lending limit are important factors.

Want to access funds at competitive rates? Explore flexible loans against insurance policies. Apply in minutes

The interest rate depends on whether you borrow directly from LIC or from another lender against an eligible insurance policy. LIC states that its policy-loan rates are declared periodically and are specific to individual plans.

For example, Bajaj Finance's loan against insurance policy page lists an interest-rate range of 7% p.a. – 12.25% per annum. This is a lender-specific published range for its insurance-policy loan offering, not a universal LIC policy-loan rate. The rate applicable to an individual borrower must be confirmed against the current product terms.

Interest rates and charges can differ because of factors such as:

• The type of insurance policy and its eligibility
• The lending institution and product terms
• The amount borrowed and applicable repayment conditions
• Whether interest is simple or compounded
• Any applicable lock-in conditions or other contractual requirements

Before comparing offers, check the annual interest rate, how interest is calculated, when it becomes payable and the total cost after applicable fees.

How is interest calculated on a LIC policy loan?

Interest is generally calculated on the outstanding loan amount, but the calculation method and payment frequency depend on the loan agreement.

For a simple-interest illustration, the formula is:

Interest = Principal × Annual interest rate × Time in years

Suppose you borrow Rs. 1,00,000 at a hypothetical simple interest rate of 10% per annum for six months.

Interest = Rs. 1,00,000 × 10% × 0.5

Estimated interest = Rs. 5,000

This example assumes simple interest, no repayments during the six-month period and no additional charges. It is not an actual LIC loan quote. If the agreement provides for compounding or a different payment schedule, the interest payable may differ.

The loan amount is generally linked to the policy's surrender value rather than simply its sum assured. The applicable limit depends on the insurer's policy conditions or the lender's terms.

LIC's published general policy conditions specify a maximum of:

• 90% of the surrender value for eligible policies.
• 85% of the surrender value for paid-up policies.

These limits include the cash value of bonuses and should not be treated as guaranteed borrowing amounts for every LIC plan. The policy document and applicable plan conditions determine the actual eligibility and limit.

How to calculate the eligible loan amount?

Use the following formula for an initial estimate:

Estimated loan amount = Eligible surrender value × Applicable loan percentage

For example, assume an eligible policy has a surrender value of Rs. 2,00,000 and the applicable lending limit is 80%.

Estimated loan amount = Rs. 2,00,000 × 80%

Estimated loan amount = Rs. 1,60,000

The 80% figure is an illustrative assumption, not a universal LIC limit. The amount actually available may be lower after accounting for the specific policy conditions and any outstanding dues.

What is surrender value?

Surrender value is the amount payable under the applicable policy terms if a policyholder terminates an eligible policy before maturity. It is not necessarily equal to the total premiums paid or the policy's sum assured.

The surrender value may depend on:

• The type of policy
• The premiums paid and policy duration
• Applicable surrender-value rules
• Bonuses or other policy benefits, where relevant
• The policy's current status and terms

You can check the value through the insurer's servicing channels or policy records. Use the current, policy-specific figure rather than an assumed estimate when calculating a potential loan.

Follow these steps to estimate your borrowing requirement and repayment costs:

1. Find the surrender value: Obtain the current value applicable to your policy from LIC or the relevant insurer.
2. Enter the proposed loan amount: Use an amount within the indicative borrowing limit for the eligible policy.
3. Enter the interest rate: Use the rate offered under the specific loan product, rather than a general market estimate.
4. Select the repayment period: Enter the tenure or period relevant to the loan arrangement.
5. Choose the repayment method: If the calculator supports different methods, select the one that matches the lender's terms.
6. Review the estimate: Check the estimated interest, instalments or other repayment amounts shown.
7. Account for additional charges: Include applicable processing, prepayment, renewal or other charges when assessing the total borrowing cost.

A calculator's result should be treated as indicative until the lender confirms the actual loan terms.

Eligibility depends on the policy conditions and the lender's requirements. Not all life insurance policies offer a loan facility.

Check the following before applying:

• Policy type: The plan must include a loan facility or qualify under the lender's product terms.
• Surrender value: The policy generally needs to have acquired an eligible surrender value.
• Policy status: The insurer or lender may impose conditions relating to whether the policy is active, paid-up or otherwise eligible.
• Premium payment history: The minimum payment period, where applicable, depends on the policy's conditions.
• Assignment requirements: The policy may need to be assigned to the lender as security.
• Lender-specific checks: A lender may apply additional eligibility, documentation and verification requirements.

Do not assume that every endowment plan, unit-linked insurance plan (ULIP), whole-life plan or other policy automatically qualifies. Confirm eligibility for the particular policy before relying on a loan estimate.

Repayment depends on the insurer or lender and the applicable agreement. Some policy loans allow interest to be paid periodically while the principal remains outstanding. Other facilities may offer a structured repayment schedule.

Possible arrangements include:

• Periodic interest payments: Interest is paid at the intervals specified in the agreement, while principal repayment follows the applicable terms.
• Principal repayment at a later date: Some arrangements allow the principal to be repaid at maturity or closure, subject to the agreement.
• Instalment-based repayment: A lender may provide a repayment schedule that includes principal and interest.
• Settlement from policy proceeds: If an outstanding loan remains when a policy matures or a claim becomes payable, the dues may be deducted from the proceeds under the applicable conditions.

Do not assume that every LIC policy loan uses monthly EMIs. Confirm the repayment frequency, principal due date, minimum payment requirements and consequences of non-payment before accepting the loan.

The interest rate alone does not show the full cost of borrowing. Review the following items before comparing a loan against a LIC policy with other credit options.

For a fair comparison, use the same proposed loan amount and repayment period where possible. Compare the total amount payable, not just the advertised interest rate.

A policy loan can provide access to funds without requiring the policyholder to surrender an eligible policy. Its usefulness depends on the borrowing cost, policy conditions and ability to repay.

Potential benefits include:

• Access to funds: Borrow against eligible policy value to meet a financial requirement.
• Avoid immediate surrender: A policyholder may access funds without terminating the policy solely to obtain its surrender value.
• Collateral-backed borrowing: The policy provides security for the loan, subject to assignment and other contractual conditions.
• Potentially flexible repayment: Certain products offer repayment arrangements other than fixed monthly instalments.

These benefits are not guaranteed outcomes. Interest, fees and unpaid dues can reduce the financial benefit, and the policy's insurance benefits remain subject to its conditions.

A loan against an insurance policy creates a repayment obligation and can affect the amount ultimately payable under the policy:

Outstanding dues may reduce policy benefits

Any outstanding principal and interest may be deducted from the maturity or death benefit in accordance with the loan agreement and policy conditions. This can reduce the amount available to the policyholder or beneficiaries.

Non-payment can affect the policy

Failure to pay premiums or meet loan-interest obligations may affect the policy's status and benefits. Depending on the policy terms, the insurer may have rights to recover dues or take other permitted action.

Charges increase the borrowing cost

Processing, prepayment or other applicable charges can increase the total cost beyond the stated interest. Read the applicable fee schedule before borrowing.

Eligibility and disbursal are not guaranteed

A calculator estimate does not constitute loan approval. The insurer or lender must verify the policy, applicable conditions and required documentation before confirming the loan.

The most suitable option depends on the amount required, the cost of borrowing, repayment capacity and the consequences of default.

Compare current offers and contractual terms before deciding. The lowest stated interest rate does not necessarily mean the lowest total borrowing cost.

A LIC policy loan calculator can help estimate the amount you may borrow against an eligible policy and understand the potential repayment cost. The result depends on the surrender value, applicable lending limit, interest rate, repayment method and charges.

LIC's published general policy conditions specify limits of up to 90% of surrender value for eligible policies and 85% for paid-up policies, but individual plan conditions may differ. Confirm the current terms directly with LIC or the relevant lender, and assess how repayment obligations could affect your policy's maturity or death benefits before borrowing.

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