LIC Policy Loan Interest Rate

LIC policy loan interest rate explained know how it works, factors that affect the rate, repayment terms, and what to consider before borrowing.
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3 mins read
04-August-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 90% 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 Insurance Policy
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.

LIC policy loan interest rate

Borrowing a loan is not just about the amount you take, it’s also about what you end up repaying over time. Even a slight variation in the interest rate can have a noticeable impact on your EMIs and total repayment.

For example, a Rs. 2 lakh loan at 10% interest will be more affordable in the long term than the same loan at 12%. Over extended tenures, such rate differences can substantially increase the total amount you repay.

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.

The benefits of taking a loan against LIC policy are clear and practical. 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.

How to get loan against LIC policy?

A loan against your LIC policy can be a convenient way to access funds without surrendering your insurance benefits. Here’s a step-by-step guide to help you understand the process:

  • Check eligibility: Ensure your LIC policy has acquired a sufficient surrender value, as loans are typically offered against policies with built-up value.

  • Review terms: Visit the official LIC portal or contact your LIC branch to check applicable interest rates, loan-to-value ratio, and repayment options.

  • Apply online or offline: Submit your loan request through the online LIC loan application process or visit your nearest LIC branch.

  • Submit required documents: Provide your policy details, identification proof, and any additional paperwork requested by LIC.

  • Approval and disbursal: Once verified, LIC will approve and disburse the loan amount directly to your bank account.

  • Continue paying premiums: Ensure regular premium payments even after availing of the loan to keep the policy active.

Things to keep in mind before taking a loan against LIC policy

Before borrowing against your LIC policy, it’s important to understand the implications and terms to make an informed choice. Here are the key points to consider:

  • Loan-to-value ratio: LIC generally offers up to 80–90% of the surrender value as a loan. Check the exact percentage before applying.

  • Interest rate and repayment terms: Understand the interest rate, repayment schedule, and penalties for late payments to avoid unnecessary costs.

  • Policy continuity: Failure to repay may reduce the policy’s surrender value or lead to policy lapse if premiums are not maintained.

  • Impact on maturity benefits: Unpaid loan amounts and accrued interest will be deducted from the final maturity or death benefits.

  • Alternative funding options: Compare this option with other secured or unsecured loans to ensure you are choosing the most cost-effective solution.

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

Can I apply for a loan against a lapsed LIC policy?

No, loans are not granted against lapsed LIC policies. The policy must be active and have acquired a surrender value. You’ll need to revive the policy first, by paying outstanding premiums before becoming eligible for a loan against it.

What happens if I do not repay the loan?

If the loan and interest remain unpaid, lender can recover the dues by adjusting them against the surrender value of your policy. If the dues exceed the surrender value, the policy may lapse, and any remaining benefits could be forfeited.

How long does it take to get funds?

Once the loan application is approved and documentation is complete, disbursal typically happens within 24 to 48 working hours. The exact timeline may vary depending on the lender and whether the process is online or offline.

Is a CIBIL check required for LIC policy loan?

Generally, a CIBIL score check is not mandatory for a loan against an LIC policy, as it is a secured loan backed by the policy’s surrender value. However, lenders may still review your credit profile for internal risk assessments.

How is surrender value calculated?

The surrender value is calculated as a percentage of the total premiums paid, excluding the first-year premium and rider charges, plus any accrued bonuses. The percentage increases with the age of the policy. Exact value depends on the policy type and tenure.

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