How to Avail Loan Against Life Insurance Policy
Life is full of surprises, and sometimes we face unexpected expenses or opportunities that require quick access to funds. In such situations, did you know you can leverage your life insurance policy to avail of a loan?
Whether you're facing unexpected expenses, planning a significant investment, or need a financial safety net, read this blog to understand the ins and outs of availing a loan against your life insurance policy so that you can make an empowered financial decision.
Steps to Take a Loan Against Life Insurance Policy
Here is a step-by-step guide to follow while applying for a loan against an insurance policy-
Step 1: Check Policy Eligibility
As per IRDAI guidelines, term insurance policies and unit-linked plans are not eligible for loans. However, traditional policies like money-back or endowment policies offer this facility. Ensure you have the right life insurance policy before applying for a loan.
Step 2: Determine Surrender Value
Verify if your policy has gained a surrender value by paying premiums for at least three years from the inception date. Only policies with a surrender value can be considered for a loan.
Step 3: Calculate Loan Amount
The loan amount depends on the surrender value of your policy, with most lenders offering up to 80%-90% of the surrender value for traditional policies.
Step 4: Find the Right Lender
Look for a lender who offers loan facilities against life insurance policies and explore their terms and conditions. Compare various options to find the most suitable one.
Step 5: Complete the Loan Application
Submit the loan application form, original policy documents, a cancelled cheque, and a payment receipt for the loan amount. The insurance policy will act as collateral for the loan.
Benefits of Availing a Loan Against Insurance Policy
Here are some of the prominent benefits of taking loan against policy-
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Lower Interest Rates
Unlike personal loans, loans against life insurance policies generally have lower interest rates, making them a cost-effective borrowing option.
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Quick Disbursement
Owing to the minimal documentation and straightforward processing, the loan disbursement is faster and provides timely access to funds in times of need.
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Streamlined Approval Process
As the life insurance policy secures the loan, borrowers experience less strict approval processes than unsecured loans.
You may also want to know How to Apply for Instant Loan
Things to Know Before Applying for a Loan Against a Life Insurance Policy
Have a look at some of the things to consider while taking a loan on insurance policy-
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Eligibility
Individuals, Hindu Undivided Families (HUFs), and sole proprietorships can apply for a loan against an insurance policy.
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Interest Charged
Interest rates for such loans are typically linked to the base rate of the policy and premium paid.
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Documentation
The loan application requires submitting an application form, original policy documents, a deed of assignment, and additional documents per the lender's requirements.
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Repayment of Loan
Timely repayment is crucial during the policy term to avoid policy lapsing, and borrowers must choose between paying only interest or both principal and interest as per their financial capability.
Conclusion
Unlocking the potential of your life insurance policy to access a loan can be a game-changer in times of need.
By understanding the eligibility, benefits, and repayment process, you can gain the confidence to make savvy financial decisions and secure your future with ease.
So, when in need, don't let your policy sit there; explore the possibilities and embrace the financial flexibility it can offer!
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.