Life Insurance Corporation of India (LIC) offers a variety of insurance policies that cater to different financial goals such as savings, investments, and life coverage. Several of these policies also come with a surrender value, making them eligible for securing a loan against their policy. By availing a loan against an eligible insurance policy, you can meet your financial requirements without surrendering the policy or losing its benefits. Here is a breakdown of the types of LIC policies typically eligible for loans:
1. Endowment life insurance policies: Endowment policies combine life insurance coverage with savings. A portion of the premium is allocated towards risk cover, while the remaining acts as savings, earning a return over time. These policies usually acquire a surrender value after a specific number of years – making them a suitable option for availing loans.
2. Whole life insurance policies: These policies provide coverage for the entire lifetime of the insured (up to 100 years usually). Over time, they accumulate cash value, and borrowers can pledge these policies to avail loans. Whole life policies are preferred for loans due to their long-term nature.
3. Unit-linked insurance plans (ULIPs): ULIPs are market-linked life insurance policies that combine investment and insurance benefits. They acquire a surrender value after the lock-in period of 5 years and can be used to secure a loan. However, the extent of the loan amount depends on the fund value and surrender value of the policy.
4. Money-back policies: Money-back policies provide periodic payouts during the policy term, apart from life cover and maturity benefits. These policies accumulate surrender value over time, making them eligible for loans upon meeting the required conditions.
5. Children's insurance plans: Insurance policies specifically designed to safeguard your child’s future can also be eligible for a loan, provided they have a surrender value and meet the lender’s criteria. These policies are advantageous as they help cover urgent financial needs while remaining intact to secure a child’s education or future expenses.
6. Traditional life insurance policies with maturity benefits: Any traditional LIC policy offering maturity benefits and having a surrender value can be used as collateral for a loan. It is crucial to ensure that you meet the tenure eligibility so that the policy has accrued sufficient funds for borrowing purposes.
Why Choose for a Loan Against LIC Policy?
A loan against an LIC policy is a practical financing option for individuals who need immediate funds without surrendering their life insurance policy. By using the policy's surrender value as collateral, you can access liquidity while keeping your insurance coverage active. This secured loan generally offers affordable borrowing costs, minimal documentation, and flexible repayment options, making it suitable for meeting personal, medical, educational, or business-related financial needs.
Key benefits include:
- Lower interest rates: Since the loan is backed by your policy's surrender value, interest rates are generally lower than those charged on unsecured personal loans or credit cards.
- Continued life insurance coverage: Your policy remains active during the loan tenure, ensuring your family's financial protection continues, provided policy premiums are paid as applicable.
- Minimal eligibility requirements: As the policy serves as security, lenders typically place less emphasis on your credit score or income proof.
- Higher borrowing potential: Eligible borrowers may receive up to 80% to 90% of the policy's surrender value, depending on the lender and policy terms.
- Flexible repayment options: Many lenders allow you to service only the interest during the loan tenure and repay the principal later, subject to the lender's repayment conditions.
Things to remember when using LIC policy for loans
- The selected LIC policy should have a surrender value, as loans cannot be availed against term insurance or policies without a cash value.
- It is essential to keep paying the premiums on the policy to avoid losing insurance coverage.
The loan amount generally depends on the surrender value and the terms defined by the lending institution. Usually, the loan amount can be a percentage of the surrender value.
By understanding the above types of LIC policies, you can determine if your policy is eligible for a loan and use it judiciously for your financing needs. Make sure to check the terms and conditions of your insurance policy and consult your lender before applying for a loan against your policy.
