Updated on - 18 July 2024
How to Get a Loan Against LIC Policy?
A life insurance policy aims to give financial protection to the survivors of the policyholder in the event of the death of the insured. But did you know that you can get loans against your LIC policies? Read ahead to know more!
What is a Loan on LIC Policy?
A loan against an LIC policy is a loan that can be availed against the security of your LIC policy. The policy gets assigned to the lender till the loan is paid back in full by the borrower. If the borrower is unable to pay the loan back, then the lender gets all the benefits that are accrued to the policy.
During the term of the loan, the insured will continue to pay premiums on the policy, as usual, the life cover will also continue.
A loan against an insurance policy is also available when the insurance policy is available from a private insurer.
What Kinds of LIC Policy Can Be Used for Availing a Loan?
Life Insurance Corporation or LIC is the biggest insurer in India which issues term plans as endowment policies. The same is done by many other private sector insurers like ICICI Prudential, HDFC Life, SBI Life, etc.
Life insurance policies can either be term policies or policies with a surrender value. Only endowment or money-back policies are allowed to be given as collateral/security against a loan.
You can take loans against different kinds of policies, like, term insurance plans, endowment, money back, whole life, or unit-linked insurance plans. This is because, in terms of insurance plans, the sum insured is payable only when there is the death of the insured. Unit-linked Insurance Policies that have values linked to the stock markets also may not be accepted as security for a loan by all lenders.
In other words, only those policies that have a guaranteed surrender value can be eligible for availing a loan. The surrender value of an insurance policy is the value payable when the policy is surrendered on any date.
For Example:
The payback may happen on 15 years of policy payment, getting to a certain age like 50, 60, etc. The maturity benefit (sum insured) in a moneyback policy can also be paid in installments. In addition to payment of maturity benefits, the sum insured as a lump sum amount is paid in case of the death of the insured.
Loan-Related Details of LIC Endowment Plans
The following table will tell in detail about the available endowment policies and their loan features -
| Policy Name | Loan Eligibility | Maximum Loan Amount | Interest Rate |
|---|---|---|---|
|
LIC’s Bima Jyoti |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% For paid-up policies: Up to 80% |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly |
|
LIC’s Bima Ratna |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly |
|
LIC's Dhan Sanchay |
Should have paid 2 years’ premium, under regular/limited premium payment. Any time after three months from the date of policy issuance or the expiry of the Free-look Period, whichever is later. |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly |
|
LIC’s Jeevan Azad |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly or the yield earned on the Corporation’s Non-Linked Non-participating fund +1.00%, whichever is higher. |
|
LIC’s Amritbaal |
Should have paid 2 years’ premium, under regular/limited premium payment. Any time after three months from the date of policy issuance or the expiry of the Free-look Period, whichever is later. |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +300 basis points, compounding half-yearly or the yield earned on the Corporation’s Non-Linked fund +100 basis points, whichever is higher. |
|
LIC’s New Endowment Plan |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Based on the method approved by the IRDAI |
|
LIC’s New Jeevan Anand |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Based on the method approved by the IRDAI |
|
LIC’s Single Premium Endowment Plan |
After completion of one policy year |
Up to 90% of Surrender Value |
Based on the method approved by the IRDAI |
|
LIC's Jeevan Lakshya |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Based on the method approved by the IRDAI |
|
LIC’s Jeevan Labh |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Based on the method approved by the IRDAI |
|
LIC’s Aadhaar Stambh |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly or the yield earned on the Corporation’s Non-Linked Non-participating fund +1.00%, whichever is higher. |
|
LIC’s Aadhaar Shila |
Should have paid 2 years’ premium |
For in-force policies: Up to 90% of Surrender Value For paid-up policies: Up to 80% of Surrender Value |
Up to 10-year G-Sec Rate p.a. +3.00%, compounding half-yearly or the yield earned on the Corporation’s Non-Linked Non-participating fund +1.00%, whichever is higher. |
Where Can a Loan Against a LIC Policy Be Availed?
A loan against a LIC policy can be availed from the insurer, Life Insurance Corporation of India, or LIC Housing Finance. Many banks also offer loans on LIC policies or policies issued by other private insurers
Some of the banks that allow loans against LIC policies are:
-
Kotak Mahindra Bank
-
Axis Bank
-
State Bank of India
-
HDFC Bank
Interest Rates on a Loan Against Insurance Policy
The Life Insurance Corporation of India charges 9.00-10.00% interest based on the insurance plan. Whereas banks charge between 10.00-15.00% interest on a loan against an insurance policy.
Please note that most banks offer loans or overdrafts against LIC or other insurance policies only to existing account holders.
How to Avail of a Loan Against a LIC Policy?
There are two ways of availing of a loan against a LIC / Insurance Policy - online and offline. Let us look at them in detail -
Online Way of Getting a Loan on LIC Policy
You can get a loan against an insurance policy online only through insurance companies. LIC offers an option to its subscribers to apply for a loan on its online portal.
The steps are mentioned below -
STEP-1: Register yourself on the LIC portal.
STEP-2: Go to ‘Online Services’ → ‘Online Loans’ option.
STEP-3: This will take you to the ‘Online Policy Options’ where you can place a request for a loan under the ‘Online Loan Request’ tab.
STEP-4: After placing the request, you may need to upload your KYC documents for verification.
Getting a Loan on LIC Policy by Offline Method
To get a loan by offline method, you would need to follow the steps mentioned below -
STEP-1: Approach the nearest LIC office or a bank branch with the required documents like the policy document and the KYC documents like your identity and the address proof.
STEP-2: Sign the required application form and get the particulars of the loan like the interest charged, tenure of the loan, etc.
STEP-3: Finally, you get the loan in a lump sum or as an overdraft.
What Loan Amount Can I Get Against an Insurance Policy?
You can get an amount up to 70-90% of the surrender value of the policy. However, this will vary based on your policy and lender.
How Can the Repayment of the Loan Against the LIC Policy Be Done?
Normally LIC offers relaxed payment options for a loan against its policy. The loan repayment could be done in the following ways -
-
Pay interest and the principal in loan EMIs
-
Pay only the interest regularly and pay the principal in due course
-
Pay the interest regularly and adjust the outstanding loan amount (principal) against the maturity benefits
However, when you avail of a loan from a bank, you would have to pay back the loan in regular EMIs.
Important Features and Benefits of Availing a Loan Against LIC Policy
There are some important features and benefits that you should keep in mind before availing a loan against an LIC policy:
-
An LIC loan comes at a cheaper rate than a personal loan (10% onwards) or a credit card interest rate (36-48%)
-
Like a personal loan, a loan availed against an LIC policy can be used for any purpose
-
Availing a loan against a LIC/Insurance policy does not require a credit score. This can come across as one of the greatest advantages for an individual with a bad credit score or no credit history
-
The life cover on the policy will continue in spite of availing the loan. In case of the death of the insured (borrower), the death benefit will be paid after deducting the quantum of the outstanding loan
-
The processing time for a loan against an insurance policy is minimal especially when it is obtained from the insurer
-
Due to the various kinds of repayment available, the financial burden is lesser
-
A loan can be availed only after the policy accumulates a certain surrender value. This means it would be difficult to avail of a loan against the policy during the initial years
Conclusion
While availing of a loan against an LIC/Insurance policy seems easier and is also available at lower interest rates, you should avail of this loan with caution. Like any other loan, avail this loan only if you are sure of paying it back on time. Or else the beneficiaries of your policy may end up losing the benefit in case of any eventuality.
How to Get a Loan Against LIC Policy - Related FAQs
Yes, you can get a loan against your LIC policy. However, the eligibility will depend on your policy’s surrender value.
Yes, taking loans from LIC can be beneficial as it is a reliable source. The interest rates will also be lower as you will be taking a secured loan against your policy.
Usually, for in-force policies, you can get up to 90% of the policy’s surrender value. In case of paid-up policies, you can get up to 80% of the policy’s surrender value. To know the exact amount, you will need to get in touch with your lender or read the policy brochure.
Generally LIC charges a 10.00% interest rate calculated on a half-yearly basis. However, interest rates will vary depending on your lender.
As in any other loan, you will need to submit valid identity, address, and income proof. Apart from these, for an LIC loan, you will also need your policy papers or details of the policy. You might also need to submit additional documents based on your lender’s requirements.
