Personal Loan Against Insurance Policy – Complete Guide

When you face an urgent need for funds, selling your long-term investments is not always the best solution. Instead, you can use your insurance policy to unlock liquidity while keeping your cover intact. Many people are unaware that life insurance policies can be pledged to avail a loan, making it one of the most convenient secured borrowing options.

Looking for quick funds without selling your investments? Apply for a loan against insurance policy today.

What is a personal loan against insurance policy?

A personal loan against insurance policy refers to borrowing money by pledging your life insurance plan as collateral. In reality, this is not an unsecured personal loan. Instead, it is a secured facility where the insurer or lender holds the rights of the policy until the loan is repaid. This means you do not need to liquidate your insurance investment or compromise on financial protection. The loan is approved based on the surrender value of your policy and offers more affordable interest rates compared to unsecured loans.

Which insurance policies qualify in India?

Not all policies are eligible. Only certain types of life insurance plans qualify for loans. Pure term insurance plans are not accepted as collateral since they do not carry a surrender value.

Types of policies that qualify:

• ULIP (Unit Linked Insurance Plan) – Combines investment and insurance with a surrender value.
• Endowment policies – Traditional plans with a savings component.

Need urgent liquidity from your ULIP or endowment plan? Get a loan against insurance policy with simple eligibility.

Loan limit and eligibility criteria

The loan amount is usually determined by the surrender value of your policy. Lenders typically offer up to 80% of this value as the loan limit.

Eligibility criteria generally include:

For example, if your policy has a surrender value of Rs. 10 lakh, you may be eligible for a loan of up to Rs. 7–9 lakh.

Looking for a high-value loan at a lower interest rate? Check your eligibility here

How does the loan against insurance policy work?

Here is a simple step-by-step explanation:

1. Policy review – The lender checks if your insurance policy qualifies.
2. Loan application – Submit a request with required documents.
3. Policy assignment – The rights of the policy are temporarily assigned to the lender.
4. Agreement – Accept the agreement and review the loan terms, and provide your consent for sanction and disbursement.
5. Loan sanction – Based on the surrender value, the approved loan is disbursed.
6. Repayment – Repay via EMIs or lump sum, depending on terms.
7. Reassignment – After repayment, the policy rights are transferred back to you.

This structure ensures you get funds without losing long-term insurance protection.

Charges, interest rates and repayment models

Interest rates are generally lower than unsecured loans since the loan is secured. However, the exact rate depends on the insurer and loan amount.

Common charges and repayment models:

Learn more about repayment details in our LIC policy loan interest rate

Documents required and assignment process

When applying, you need to submit a few standard documents along with your insurance details.

Assignment process:

• The policyholder signs an assignment form, transferring policy rights to the lender.
• The lender informs the insurer about the assignment.
• Once the loan is repaid, rights are reassigned back to the policyholder.

Here are some major advantages:

• Quick approval due to minimal documentation.
• Lower interest compared to personal loans.
• No need to liquidate long-term investments.
• Continue enjoying insurance cover.
• Flexible repayment options.
• High-value loans are possible for policies with a large surrender value.

Convert your insurance into instant liquidity. Apply for a loan against insurance policy now.

Risks, scams and precautionary tips

While beneficial, there are certain risks to be aware of:

• Policy lapse risk – If premiums are unpaid, both the policy and the loan may suffer.
• Default impact – Failure to repay can lead to policy termination.
• Misleading agents – Avoid unregistered intermediaries offering fake loan schemes.
• Hidden charges – Always check for processing fees, foreclosure penalties, or other charges.

Precautionary tips:

• Always approach reputed lenders.
• Ensure you fully understand the terms.
• Do not over-borrow beyond your repayment capacity.
• Keep your policy premiums up to date.

Conclusion

A personal loan against an insurance policy is essentially a loan against the surrender value of your ULIP. It is one of the most convenient ways to access liquidity without losing your long-term protection. By pledging your policy, you can get high-value funding at lower rates, with minimal hassle and faster processing.

Turn your insurance into a financial backup. Apply for a loan against insurance policy and secure funds today.