Loan Against Life Insurance Policy
Last Updated : May 4, 2020, 7:10 p.m.
Facing some financial stress in your life? Looking to overcome it by opting for a loan but confused among the several loan options? Your life insurance policy can be an amazing asset against which you can get the required loan amount at affordable interest rates. In a loan against a Life Insurance Policy, your policy will act as a collateral or security against the loan amount, while you still have your insurance policy unimpaired in case of some emergencies. There are so many benefits of loan against life insurance policy such as ease of taking the loan, affordable interest rates, lenient eligibility criteria, among others.
There is one thing that you need to remember that a loan is granted only against traditional insurance plans and not against the term insurance plans. Apart from this, some lenders also provide the loan amount against the ULIPs (Unit-Linked Insurance Plans). The ULIPs are those insurance plans which serve as both investment and insurance solutions. When you pay a premium of such insurance plans, a part of it goes towards the investment in the capital market and the other part goes towards insurance.
In this article, we will provide you some detailed information about all the aspects of a Loan Against Life Insurance Policy — How to apply for it, Interest rates, How much loan amount you can get, and many important ones. So, keep reading!
Why Should You Go for a Loan Against Life Insurance Policy?
You must be thinking about why you should go for a Loan Against Life Insurance Policy when there are so many other loan facilities that you can avail of? Well, there is more than one reason that makes this loan facility favorable and popular among the needy individuals.
The first and foremost reason is the affordable interest rates that you could get on the loan against the life insurance policy. While applying for any loan facility, individuals look to opt for a one with low-interest rates and this facility can be granted at lower rates. The reason being your life insurance policy acts as a collateral against your loan amount and that helps lenders to give you much lower interest rates. Other than this, a high loan amount, lenient eligibility criteria, and quick disbursal of the loan amount are some other reasons because of which you should go for a loan against the life insurance policy.
What is the Interest Rate on Loan Against Life Insurance Policy?
Now coming to the most important part about the Loan Against Life Insurance Policy which is the interest rates. As we know that every individual wants to have a look at what interest rate a lender is offering before finalizing his or her loan facility. In case of a loan against a life insurance policy, interest rates depend on the premium of your policy that you have already paid and the number of the times you have paid the premium. The rates will most likely be lower if you have paid a greater premium for an extended period.
Usually, interest rates on Loan Against Life Insurance Policy range from 10% to 12% per annum. Though interest rates change from one lender to another. Although a poor credit score or no credit history may not lead to the rejection of this secured loan, a good score can play a crucial role in determining your interest rates.
Lower interest rates will help you in easily repaying the loan amount as the EMI will come down compared to the high-interest rates loan facility. Also, you must remember that you can not opt for a loan against the life insurance policy right after you buy it. There is an established waiting period of 3 years before which you can’t get the loan amount against your policy.
How Much Loan Amount Can You Get on Applying for a Loan Against Life Insurance Policy?
This is one common question that a lot of individuals ask before applying for the loan against the life insurance policy. If you are also one among them, you can read further to know the loan eligibility.
There is a huge misconception among people that the loan amount depends on the overall value of their life insurance policy, which is not true. Instead, the loan amount depends on the surrender value of your life insurance policy. So, first understand what is the surrender value? It is the value that a policyholder gets from the life insurance company if he or she decides to exit the policy before the fixed maturity.
Lenders usually give 80% to 90% of the total surrender value of your traditional policy as the loan amount. This percent may change from one lender to another. While in the case of loan against ULIPs, the loan amount depends on the current market value of the policy and which type of fund it is.
Let’s understand through this an example. Suppose that you have an insurance policy that will give you a total insurance amount of INR 40 lakh. At the time of requesting the loan, its surrender value is INR 15 lakh. So, based on it, you could get a loan amount of INR 12 lakh to a maximum of INR 13.5 lakh.
Loan Against Life Insurance Policy of Top Lenders
Now after knowing so much about the loan against a life insurance policy, you must want to know the loan offers of several lenders. Well, several banks provide this loan facility. We are providing details about some of the top lenders that provide a loan against life insurance policy so that you can make a better decision while choosing the one for you. Have a look!
Axis Bank Loan Against Life Insurance Policy
Axis Bank is one of the leading private banks of India that provides this amazing loan facility with which you can meet your financial requirements. Available at affordable interest rates of 10.50% to 12.75% per annum, you can get a maximum loan amount upto 85% of the total surrender value of your life insurance policy. The interest will be charged only on the utilized amount. Other than this, you will also get an ATM and Cheque Book facility on this. You can check other important details in the below table.
| Loan Aspect | Details |
|---|---|
| Minimum Loan Amount | Customized |
| Maximum Loan Amount | Upto 85% of the Total Surrender Policy Value |
| Rate of Interest | 10.50% to 12.75% per annum |
| Processing Fee | 0.50% of the Loan Amount or INR 1,000, whichever is higher, plus GST charges |
| Renewal Facility Charges | INR 1,000 + GST |
| Loan Tenure | Overdraft Facility for 12 months |
| Prepayment Charges | Nil |
| Foreclosure Charges | Nil |
Kotak Mahindra Loan Against Life Insurance Policy
Kotak Mahindra Bank can give you the loan amount as minimum as INR 3 lakh and as maximum as 90% of your overall surrender policy value. The loan amount will be in an overdraft facility, so you will need to pay the interest only on the amount that you utilize. The initial loan tenure will be of 12 months which can be renewed according to your repayment history and other things.
We are providing you some other important aspects of this loan facility. Do check them below!
| Loan Aspect | Details |
|---|---|
| Minimum Loan Amount | INR 3 lakh |
| Maximum Loan Amount | Upto 90% of the Total Surrender Policy Value |
| Rate of Interest | 9.25% to 13% per annum |
| Processing Fee | 2% of the Loan Amount plus applicable GST charges |
| Renewal Facility Charges | Customized |
| Loan Tenure | Overdraft Facility for 12 months |
| Prepayment Charges | Nil |
| Foreclosure Charges | Nil |
ICICI Bank Loan Against Life Insurance Policy
ICICI Bank, which is one of the top private banks of India, can give you a maximum loan amount of INR 5 crores in a hassle-free manner. This amount can be as minimum as INR 50,000. The loan can be taken against approved Insurance Policies only that will be decided by the ICICI Bank. Anyone between 21 to 75 years of age can apply for this loan facility. You can withdraw as much loan amount as you want from the current account, which will be set up for this purpose, and the interest will be charged on the withdrawal amount only.
The below table has other important aspects related to this loan facility. Have a look!
| Loan Aspect | Details |
|---|---|
| Minimum Loan Amount | INR 50,000 |
| Maximum Loan Amount | INR 5 crores (Depends on your Total Surrender Policy Value) |
| Rate of Interest | 8.90% to 11% per annum |
| Processing Fee | INR 3,500 plus applicable GST charges |
| Renewal Facility Charges | INR 2,500 plus GST at the end of each year |
| Loan Tenure | Overdraft Facility for 12 months |
| Prepayment Charges | Nil |
| Foreclosure Charges | Nil |
HDFC Bank Loan Against Life Insurance Policy
HDFC Bank is the largest private sector bank of India and the reason behind its seamless banking services. Loan against a life insurance policy is one such policy that you can opt for. The loan amount starts from INR 2 lakhs and you can get a maximum of 80% of the surrender value of your policy as the loan amount. To apply for this loan, you just need to visit one of the nearest HDFC branches and complete the application process. The loan disbursal time is much faster if you are an existing customer of HDFC Bank. Check out the table to know HDFC Loan Against Life Insurance Policy in detail.
| Loan Aspect | Details |
|---|---|
| Minimum Loan Amount | INR 2 lakhs |
| Maximum Loan Amount | Upto 80% of the Total Surrender Policy Value |
| Rate of Interest | Customized |
| Processing Fee | Upto 1% of the Loan Amount plus applicable GST charges or Minimum INR 5,000 |
| Renewal Facility Charges | Customized |
| Loan Tenure | Overdraft Facility for 12 months |
| Prepayment Charges | Nil |
| Foreclosure Charges | Nil |
Bajaj Finserv Loan Against Life Insurance Policy
The most important thing to get a Loan Against Life Insurance Policy is that the overall surrender value of your policy must be INR 10 lakh. With the help of this facility from Bajaj Finserv, you can get a loan amount upto INR 10 crores. Obviously, it will depend on the overall surrender value of your policy. The best thing about this is that you don’t have to pay interest on the total amount but only on the amount you withdraw from your bank account. Any individual above 21 years of age can easily apply for this loan facility.
| Loan Aspect | Details |
|---|---|
| Minimum Loan Amount | Customized |
| Maximum Loan Amount | INR 10 crores (Depends on the Total Surrender Policy Value) |
| Rate of Interest | 9.50% to 12% per annum |
| Processing Fee | 0.10% to 1% of the Loan Amount plus applicable GST charges |
| Renewal Facility Charges | Customized |
| Loan Tenure | Overdraft Facility for 12 months |
| Prepayment Charges | Nil |
| Foreclosure Charges | Nil |
Term Loan and Overdraft: Which Type of Loan do You Get When It is Granted Against Life Insurance Policy?
It is important to know which type of loan you will get while applying for any loan facility. There are two types of loan that lenders usually give – Term Loan and Overdraft. In term loans, you will get the total loan amount in your account and the interest will be charged on the total amount for a fixed tenure. While in the case of the Overdraft loan facility, the interest amount will be charged on the only amount that you will use. In the case of Loan Against Life Insurance Policy, lenders usually provide the overdraft facility. This helps you in fulfilling your needs by utilizing only the amount you need. Let’s understand this through an example.
Suppose that you get a total loan amount of INR 10 lakhs in your account, and you only withdraw INR 1 lakh for your use. So, the interest will be charged on this utilized amount only because of the Overdraft facility. You can pay the interest amount at the end of tenure in one go.
How to Apply for a Loan Against Life Insurance Policy?
The application process of loan against a life insurance policy is quite easy to understand. You just need to visit one of the nearest branches of the lender you want to take a loan from, with your basic KYC documents and a copy of your policy. You will need to fill the application form over there and submit your documents. The documentation may change from one lender to another. After the documentation, the lender will authenticate your documents, and as soon as it is done, you will get the loan amount in your bank account.
How to Get in Touch with Customer Care?
In case you have any query or question regarding your loan against a life insurance policy, you can get in touch with the representatives of the respective lender from whom you may have taken the loan. You can contact them by calling the customer care representatives or you can also send an email on their registered email address. All your queries will be solved accordingly in the shortest time possible.
