LIC Policy Loan Interest Rate

Learn about LIC policy loan interest rates. Understand how these loans work, the interest rates involved, and key factors to consider before borrowing against your LIC policy.
APPLY NOW
Get easy loans against your insurance policy!
APPLY NOW
3 mins read
28-May-2025

Did you know that the interest rate on a loan against your insurance policy can significantly impact your overall repayment amount and financial planning? Understanding how these rates are calculated, their effect on monthly payments, and the total loan cost empowers you to make smarter borrowing decisions. By staying informed, you can choose the most cost-effective option, avoid unnecessary financial strain, and ensure that your policy continues to serve your long-term goals.

But what if you could unlock funds without compromising your policy benefits?

Get a loan of up to 80% of your policy’s surrender value with ease! Apply now

What is an LIC policy loan?

Ever wished you could access funds without breaking your long-term investments? That’s exactly what a policy loan does. While many associate this only with LIC, the reality is broader you can borrow against the surrender value of life insurance policies like ULIPs and endowment plans.

This secured form of credit offers fast processing and better interest rates than most unsecured loans. Your policy stays active—you simply unlock its value.

Explore how your ULIP or endowment plan can help you borrow smarter. Apply for loan against insurance policy now

Types of policies offering loans

Not just LIC several life insurance policy types let you access funds based on their accumulated cash or surrender value:

  • Whole life policies build value over decades, which can be used for urgent funding needs.
  • Endowment plans are ideal if you’re looking for mid-term liquidity options.
  • Money-back policies offer periodic returns, giving you collateral you can borrow against.
  • ULIPs blend investment with insurance, and their market-linked returns make them valuable for loans.
Loan Against Shares
Loan Against Mutual Funds

Factors influencing the interest rates

Not all policy loans have the same cost. Several things shape your interest rate:

  1. Policy type: Traditional policies may offer better loan value than term plans.
  2. Loan amount: Bigger loans may come with tighter scrutiny or adjusted rates.
  3. Loan tenure: The longer the loan, the more interest it could attract.
  4. Market trends: Economic conditions influence base lending rates.
  5. Credit profile: A solid credit history may help secure better terms.

Understanding the impact of loan interest rates

Let’s simplify this: A loan is not just about the amount you borrow it’s also about how much you repay. Even a slight variation in interest rate can affect your EMIs or final dues significantly.

For example, a Rs. 2 lakh loan at 10% costs less over time than the same loan at 12%. These percentages stack up, especially over longer tenures.

Who can avail loan against LIC policy?

Technically, any policyholder with a traditional life insurance plan that has built surrender value may qualify. But remember—this isn’t limited to LIC.

Eligibility snapshot:

  • The policy must be active and premium-compliant
  • It should have built a decent surrender value
  • You must be the rightful owner of the policy

Not sure if your policy qualifies? You might be closer to funding than you think. See if your plan is eligible

Eligibility and documents required for LIC policy loan

Good news getting a loan against a valid life insurance policy is usually fuss-free. You’ll just need:

Eligibility

  • A ULIP or endowment policy with surrender value
  • A history of premium payments
  • Loan value within the allowed percentage of surrender value

Documents

  • Application form
  • Original policy document
  • Valid ID & address proof
  • Recent premium receipts

Benefits of taking a loan against LIC policy

If you are looking for quick access to funds without disturbing your long-term investments, a loan against a life insurance policy offers just that. It’s a smart and secured way to manage short-term liquidity without compromising on your future protection.

Here’s why more borrowers are choosing this route:

  • Lower interest rates – Since your policy acts as collateral, lenders offer better rates than unsecured loans.
  • No credit score anxiety – Approval is based on your policy’s value, not your credit report.
  • Fast approvals – With minimal documentation and no income verification in many cases, disbursal is quicker.
  • Policy stays active – Your insurance coverage continues uninterrupted, as long as premiums are paid on time.

How to calculate a loan against LIC policy?

Not sure how much you can borrow against your policy? It depends on its surrender value, which builds over time as you pay premiums. Most traditional insurance plans like ULIPs or endowment policies qualify.

Let’s walk through an example:

  • Say your policy has a surrender value of Rs. 5 lakh.
  • Lenders usually offer 80% to 90% of that as a loan.
  • So, your eligible loan amount could be between Rs. 4 lakh and Rs. 4.5 lakh.
  • The applicable interest rate typically ranges from 6% p.a. to 24% p.a., depending on lender terms.

How to calculate loan repayments?

Understanding the repayment structure is essential before you borrow. Most policy loans are interest-serving, which means you usually pay only the interest periodically, and repay the principal later.

Here’s how repayment typically works:

  • If there’s a lock-in period, interest is paid at regular intervals, and the full principal is repaid at the end.
  • If there’s no lock-in, you may have flexible repayment, including monthly interest servicing.
  • The principal repayment often coincides with the loan maturity or closure whichever comes first.

Using an EMI calculator can help estimate the monthly outgo and plan your finances accordingly.

Conclusion

A loan against your LIC or similar life insurance policy can be an efficient, low-risk funding solution—especially when you’re looking to raise funds without liquidating savings or breaking investments. It’s not only faster and more accessible than personal loans but also keeps your life cover intact. Whether you are managing business expenses, covering emergencies, or bridging a temporary cash gap, your insurance policy can provide the funds without letting go of your future security.

Need funds now? Your policy could be the key. Apply for a loan against your insurance policy

Frequently asked questions

Can I negotiate the interest rate on a life insurance policy loan?
Negotiating the interest rate on a life insurance policy loan is typically not possible, as the rates are set by the insurance company. However, it's always advisable to check with your provider for any possible flexibility.

How does the interest rate on a life insurance policy loan compare to traditional loans?
The interest rate on a life insurance policy loan is often lower than that of traditional loans, such as personal loans or credit cards, because the loan is secured by the cash value of the policy.

What happens if I don't repay the loan with interest on my life insurance policy?
If you don't repay the loan with interest on your life insurance policy, the outstanding loan amount and accrued interest will be deducted from the policy's death benefit or cash value, reducing the amount payable to beneficiaries.

How can I find out the current interest rate on a life insurance policy loan from my provider?
To find out the current interest rate on a life insurance policy loan from your provider, you can check your policy documents, visit the provider's website, or contact their customer service directly for the most accurate and up-to-date information.

Is getting a loan against insurance a good option?

Yes, it’s a cost-effective way to access funds while keeping your policy benefits intact. With lower interest rates and no need to sell assets, it’s a smart choice.

Get a loan of up to Rs. 1000 Crores against your insurance policy. Apply now

Show More Show Less

Bajaj Finserv App for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.

  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements, and even get quick customer support—all on the app.
Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.