₹10,000 - ₹25 Cr
Loan of up to 80% of policy value| Funding against policies under lock-in period
Overview
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What is the meaning of a policy loan?
In simple terms, a policy loan is a secured loan provided against the cash value or surrender value of a life insurance policy.
Here is how it works:
- Collateral: The insurance policy itself acts as security.
- Eligibility: Only certain policies, like ULIP (Unit Linked Insurance Plans), qualify.
- Loan amount: Based on surrender value (usually up to 80%).
- Ownership: The policyholder retains ownership and benefits of the policy.
- Quick process: Easier to get compared to unsecured loans like personal loans.
Enjoy quick approvals with a loan against insurance policy and cover urgent needs with ease.
Which insurance policies qualify for policy loans?
Not all life insurance policies are eligible for loans. Only those with a cash or surrender value qualify.
Policies eligible for loans include:
- Unit Linked Insurance Plans (ULIPs) – market-linked plans that accumulate cash value.
Policies not eligible:
- Term insurance plans.
- Pure risk cover policies without maturity benefits.
Leverage your ULIP or endowment plan with a loan against insurance policy to unlock emergency funds. Apply now
How much can you borrow? Surrender value and loan limits
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The loan amount depends on your policy’s surrender value, which is the cash value accumulated if the policy is discontinued.
For example:
- Policy surrender value: Rs. 5,00,000
- Loan-to-value ratio: 80%
- Eligible loan amount: Rs. 4,00,000
| Policy surrender value | Loan-to-value ratio | Maximum loan amount |
|---|---|---|
| Rs. 2,00,000 | 80% | Rs. 1,60,000 |
| Rs. 5,00,000 | 80% | Rs. 4,00,000 |
| Rs. 10,00,000 | 80% | Rs. 8,00,000 |
Interest rates and repayment: Understanding costs
Interest rates on policy loans are usually lower than unsecured loans, since the policy acts as collateral. The repayment can be flexible, but interest must be paid regularly to prevent policy lapse.
Example: If you borrow Rs. 3,00,000 at 10% p.a. interest, the yearly interest would be Rs. 30,000. Failure to pay interest can lead to the outstanding loan amount being deducted from the policy benefits.
Impact on death benefit and policy value
A policy loan reduces the death benefit payout. If the insured passes away before repaying the loan, the outstanding loan plus accrued interest is deducted from the death claim.
Example:
- Policy sum assured: Rs. 20,00,000
- Outstanding loan: Rs. 3,00,000
- Interest accrued: Rs. 50,000
- Nominee receives: Rs. 16,50,000
Thus, while a policy loan provides liquidity, it also impacts the future payout if not repaid on time.
How to apply for a loan against an insurance policy?
Applying for a policy loan is simple and can be done online or offline.
Steps to apply:
- Check if your policy qualifies (ULIP or endowment).
- Contact your insurer or lender.
- Submit required documents: policy bond, KYC documents, and application form.
- Loan amount is assessed against the surrender value.
- Approval and disbursal usually happen within a few days.
Apply online for a loan against insurance policy and get funds faster.
Policy loans vs. Other loan types
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Here is how a policy loan compares with other options:
| Feature | Policy loan | Unsecured loan | Loan against FD |
|---|---|---|---|
| Collateral | Insurance policy | None | Fixed deposit |
| Interest rate | Lower | Higher | Lower |
| Loan processing | Quick | Moderate | Quick |
| Loan amount | Based on surrender value | Based on income/credit | Based on FD value |
| Impact on asset | Reduces death benefit if unpaid | No impact | FD lien until repayment |
What happens when a life insurance policy lapses?
While policy loans are convenient, they carry risks if not managed well.
Precautions to take:
- Repay interest regularly to avoid policy lapse.
- Do not borrow more than you can repay.
- Understand the impact on death benefits.
- Keep track of outstanding dues.
Benefits of taking a loan against insurance policy
Some of the key advantages are:
- Quick access to funds without breaking investments.
- Lower interest rates compared to unsecured loans.
- Minimal credit score dependency
- Simple documentation and a faster approval process.
- Ownership retained – policy benefits continue if the loan is repaid on time.
Conclusion
Features & Benefits for Bajaj Finance loan against shares
A loan against insurance policy is also called a policy loan, and it is one of the most efficient ways to access funds in emergencies without losing the benefits of your insurance cover. By pledging your endowment or ULIP policy, you can unlock liquidity at competitive interest rates with flexible repayment terms. However, it is important to borrow wisely, repay on time, and keep track of outstanding dues to protect both your policy and your family’s future benefits.
Turn your ULIP or endowment plan into instant funds with a loan against insurance policy.
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Frequently asked questions
General
What is a loan against an insurance policy called?
A “loan against insurance policy” (often called a policy loan) lets you borrow by pledging a life insurance policy such as an endowment or ULIP as collateral. Funds are sanctioned against the policy’s surrender/policy value, while the policy stays active.
Which types of insurance policies can be used for a policy loan?
Eligible policies typically include endowment and unit-linked insurance plans (ULIPs) that have a surrender value. Lenders may also allow money-back plans from approved insurers. Check your insurer/lender’s approved list before applying.
How much can I borrow against my policy?
Limits depend on the surrender/policy value. Bajaj Finance Limited lists sanction amounts up to Rs. 25 crore, generally capped around 80% of surrender value. Minimums can start at Rs. 10,000, subject to eligibility and verification.
What interest rates apply to policy loans in India?
Indicative rates range from about 8% p.a. to 24% p.a. For policies under lock-in, interest typically compounds and can be paid as a bullet at lock-in completion; for lock-in-free policies, simple interest is charged and paid monthly. Actual rates vary by profile and policy.
Will taking a policy loan reduce the death benefit?
Your insurance coverage generally continues you need not surrender the policy to borrow. Keep the policy active and service interest as required. The policy is assigned to the lender during the loan and is reassigned to you when the loan is closed.
How do I apply for a loan against my insurance policy?
Apply online: click “Apply,” enter basic details, choose “Insurance Policy” under Type of Security, provide the surrender value, select your city, submit, and verify the OTP. Keep PAN, officially valid document, policy document, and bank proof handy. Disbursement follows successful verification and policy assignment.
What happens if I fail to repay the policy loan?
If you fail to repay a loan taken against your life insurance policy, the lender may recover the outstanding amount, including accrued interest, from the policy’s surrender value or claim proceeds. In severe cases, the policy may lapse if the loan balance exceeds the available policy value.
Will taking a loan affect my policy benefits?
Yes, taking a loan against your policy can affect the benefits payable. Any outstanding loan amount and accumulated
Disclaimer
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