Insurance policies serve as a great instrument to tackle any unfavourable situation and are even beneficial after retirement. Most of the life insurance policies come with the due benefits of savings component and insurance coverage. You can also use your life insurance policies, such as LIC policies, to avail loans. Many insurance plans offered by the Life Insurance Corporation of India (LIC) are eligible for loans.
Depending on the insurance plans, one can avail a loan against life insurance policy to meet urgent financial needs. These loans come with various advantages, including flexible repayment terms.
How much money can you get under a loan against an insurance policy?
Most of the LIC policies and life insurance plans offered by other insurers come with the loan eligibility component. This means that loan can be availed against the life insurance policy by pledging it to lenders. Most of the LIC endowment plans are eligible for loan facilities. The loan amount is decided based on the surrender value of the life insurance plan.
The borrowers can get up to 85 to 90 per cent of the surrender value of the LIC policy. For instance, if the surrender value of your insurance policy is Rs 5 lakh you can avail loans up to Rs 4.5 lakh.
The interest rate on loan against insurance policy could vary depending on the lender. The Life Insurance Corporation of India offers loans against LIC policies at an interest rates starting at 10 per cent per annum.
Moreover, the repayment tenures and modes are flexible as well. In addition, LIC allows an option where you just pay the interest and the principal amount can be deducted from your total maturity balance. However, the repayment terms and loan interest rates would differ according to the lender or bank you have chosen to avail the credit facility. One thing to note here is that the interest rates are generally lower than personal loans or secured loans offered by banks.
Advantages and Disadvantages of a loan against insurance policy
The advantages of a loan against insurance policy include:
• Get a considerably high loan value compared to personal loans.
• Lower interest rates than most secured loans.
• Requires minimal paperwork.
• Loan balance can be settled from the total maturity amount.
The disadvantages of a loan against insurance policy include:
• If you make a default in repayment, the policy will lapse.
• Loans can be availed only after a waiting period of three years after purchasing the policy.
• Loans can't be availed against all types of insurance policies.
• The loan amount sanctioned could be lower during early years of the policy.
