A Loan Against Insurance Policy allows policyholders to access funds by pledging their life insurance policies as collateral. This type of loan provides a quick and efficient way to meet financial needs without the need to liquidate other investments or assets. Loans are typically available against traditional life insurance policies, such as endowment and money-back policies, where a surrender value has accumulated over time.
The loan amount is generally based on a percentage (often 80-90%) of the policy’s surrender value. Since the policy acts as collateral, interest rates are typically lower than unsecured loans, making it an attractive borrowing option.
Advantages of Loan Against Insurance Policy:
Types of Loan Against Insurance Policy:
Term-Based Loan
Under this option, a lump sum is disbursed against the policy’s surrender value, repayable over a set tenure. This structure is suitable for those who need a one-time amount for a specific purpose, with structured EMIs (Equated Monthly Installments).
Overdraft Facility
This type of loan provides an overdraft against the surrender value of the insurance policy, allowing borrowers to withdraw funds as needed up to a certain limit. Interest is charged only on the utilized amount, making it a flexible option for managing cash flow needs.
How Loan Against Insurance Policy Works:
1. **Eligibility Check**: The borrower must ensure that their policy is eligible for a loan; generally, only traditional policies with surrender value qualify.
2. **Surrender Value Assessment**: The lender calculates the surrender value of the policy and determines the eligible loan amount.
3. **Loan Disbursement and Repayment**: The loan is disbursed, and borrowers can repay through EMIs or periodic payments. The policy remains active as long as premiums are paid, and benefits continue as normal.
