Loan Against Life Insurance Policy Benefits
Last Updated : May 5, 2020, 4:57 p.m.
Do you know that you can get out of any financial hardship by getting the required funds against your life insurance policy? Well, yes, a loan against a life insurance policy can be an excellent option to exercise and achieve your financial needs. Offered by numerous banks in India, this secured loan option can be the right one if you are confused between too many loan options. To get this loan, you just need to submit your life insurance policy, which will act as the collateral for the loan you receive from the lender.
Lenders provide loan amounts against different types of life insurance policies such as traditional plans, endowment plans, and also against Unit-Linked Insurance Plans (ULIPs). In this article, we will tell you about all the innumerable benefits that you can enjoy by opting for a loan against a life insurance policy. So, without any further delay, keep reading!
We are telling you some of the benefits of the loan against a life insurance policy that makes this facility as one of the most popular products among the customers. Take a look!
Affordable Interest Rates
The best part of a loan against a life insurance policy is the lower rate of interest at which you can get the loan amount. The first reason is its secured nature as you are pledging your insurance policy as the collateral. This makes lenders provide you the loan at low-interest rates as compared to high-interest unsecured loans.
Usually, Loan Against Life Insurance Policy interest rates range from 10% to 12% per annum and it may change from one lender to another. The two most important things that affect your interest rate are the total amount of premiums and the number of total premiums paid till now. Lenders are more likely to give you a low-interest loan if you have been paying the premium amount for a continued period. This period must be more than 3 years to get a suitable loan amount.
Due to lower interest rates, your repayment amount will also be a lot lower and you will find it much easier to repay. We are telling you interest rates of top lenders on a loan against the life insurance policy. Check them below!
| Lender | Interest Rate (In per Annum) |
|---|---|
| Axis Bank | 9.50% to 12.75% |
| Kotak Mahindra Bank | 9.25% to 13% |
| ICICI Bank | 8.90% to 11% |
| Bajaj Finserv | 9.50% to 12% |
Higher Loan Amount
Everybody wants to get the maximum loan amount while applying for the loan facility. And the loan against a life insurance policy helps individuals in achieving the same. A lot of people conceive it wrongly that the loan amount is based on the overall value of the policy. The loan amount is actually decided based on the surrender value of your policy. Lenders usually give 85% to 90% of the surrender value as the loan amount which is quite huge. This margin may change from one lender to another for different individuals.
Surrender value is the value that you get if you decide to exit the policy before its full maturity. So, if the overall value of your policy is 50 lakh and its surrender value is INR 30 lakh, you can get the loan amount ranging from INR 25.5 lakh to a maximum of INR 27 lakh. If you want to get a loan against ULIPs, the loan value will be decided on the basis of the current market value of the fund.
In the below table, you can have a look at the maximum loan amount provided by different lenders.
| Lender | Maximum Loan Amount |
|---|---|
| Axis Bank | Upto 85% of the Total Surrender Value |
| Kotak Mahindra Bank | Upto 90% of the Total Surrender Value of the Policy |
| ICICI Bank | INR 5 crores (Depends on your Total Surrender Value) |
| Bajaj Finserv | NR 10 Crores (Depends on the Total Surrender Value) |
| HDFC Bank | Upto 80% of the Total Surrender Value of Policy |
Quick Availability of Loan & Minimal Documentation
This is one factor where a loan against life insurance policy trumps other types of loans as with this facility, you don’t have to go through the lengthy and tiresome loan process to get the loan amount. Instead, you can get the loan amount in a few days from completing the application and documentation processes. The lender will do the required authentication and disburse the loan amount into your account. Unlike other loans, you don’t need to worry about any inconvenience regarding this loan facility.
The documentation process is also pretty simple and minimal. You just need to provide basic KYC documents, a copy of your insurance policy, and you will be good to go! If you are an existing customer of the lender, the process will be a lot swift.
Overdraft Facility
A loan against a life insurance policy is mostly sanctioned as an overdraft. The interest rates will be charged on the amount you utilize and not the total amount sanctioned. Through this facility, the total loan amount will be transferred to a current account, which will be set up by the lender.
Suppose that the lender disbursed a loan amount of INR 20 lakhs to your account. Currently, you only need INR 5 lakh, so you can withdraw the required amount. You will only have to pay the interest on this utilized amount of INR 5 lakh. So, you can see how you can enjoy this amazing facility.
Lenient Eligibility Criteria Creates Fewer Chances of Rejection
Since this loan facility is a secured loan, individuals do not need to go through any strict eligibility criteria. They just need to have an insurance policy against which they can get the loan amount. The only thing you need to check whether the concerned lender offers you the said loan facility or not.
Other than this, if you have faced rejection for other loans due to a low CIBIL score, you can get this loan easily as credit score norms don’t normally apply here. The loan will be disbursed with the minimum possible scrutiny.
Due to the lenient criteria, you have fewer chances of rejection when it comes to a loan against a life insurance policy.