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Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
How to Get a Loan Against an LIC Policy
How to Get a Loan Against an LIC Policy
Jul 17, 2024
6 Mins
A life insurance policy primarily aims to provide financial protection to the beneficiaries in the unfortunate event of the policyholder’s death. However, did you know that these policies can also serve as collateral for securing loans? Here, we explore the concept of loans against LIC policies, their features, benefits, and the process of obtaining such loans.
Understanding Loans Against LIC Policies
A loan against an LIC (Life Insurance Corporation) policy is a type of secured loan where the policyholder uses their LIC policy as collateral. The lender, typically a bank or financial institution, holds the policy until the loan is fully repaid. If the borrower defaults on the loan, the lender has the right to claim the benefits accrued under the policy.
Eligibility for Loan Against LIC Policies
Not all LIC policies are eligible for loans. Generally, endowment or money-back policies, which accumulate a surrender value, qualify as security for loans. Term insurance plans and unit-linked insurance plans (ULIPs) are usually excluded. Here’s a brief look at the types of LIC policies that can be used for loans:
Endowment Policies
Money-Back Policies
Whole Life Policies
Policies that do not accumulate a surrender value, such as pure term plans, are not eligible for loans.
Key Details of LIC Endowment Plans
Below is a detailed look at the loan features associated with various LIC endowment plans:
LIC’s Bima Jyoti
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC’s Bima Ratna
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC's Dhan Sanchay
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC’s Jeevan Azad
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly or the yield earned on the Corporation’s Non-Linked Non-participating fund + 1%, whichever is higher.
Applying for a Loan Against LIC Policy
Loans against LIC policies can be availed either online or offline. Here’s how:
Online Application Process
Registration: Register on the LIC portal.
Navigate: Go to ‘Online Services’ and select ‘Online Loans’.
Request: Place a request under the ‘Online Loan Request’ tab.
Verification: Upload KYC documents for verification.
Offline Application Process
Visit Branch: Approach the nearest LIC office or a partnering bank.
Documents: Carry necessary documents like the policy document and KYC proofs.
Sign Forms: Fill out and sign the required loan application forms.
Approval: Upon approval, receive the loan amount either as a lump sum or an overdraft.
Loan Amount and Repayment
The amount one can borrow is typically between 70-90% of the policy's surrender value, varying with the policy and lender. LIC offers flexible repayment options, including:
EMIs: Regular EMIs covering both interest and principal.
Interest-Only: Pay only interest periodically, with principal repayment due at maturity.
Adjustment: Interest paid regularly, with the principal adjusted against maturity benefits.
Interest Rates
The interest rates on loans against LIC policies typically range from 9.00% to 10.00% per annum. Banks may charge higher rates, generally between 10.00% and 15.00%.
Advantages of Loans Against LIC Policies
Lower Interest Rates: Generally lower than personal loans or credit card rates.
No Credit Check: Credit score not required, beneficial for those with poor or no credit history.
Continued Coverage: Life cover continues during the loan tenure.
Quick Processing: Faster processing time compared to other loan types.
Flexible Repayment: Various repayment options reduce financial burden.
Features and Benefits
Secured Loan: Lower risk and interest rate due to policy collateral.
Usage Flexibility: Loan can be used for any purpose, similar to personal loans.
Minimal Documentation: Easy and quick approval process.
Protection for Beneficiaries: In case of the insured's death, the outstanding loan is deducted from the policy benefits.
No Impact on Credit Score: Suitable for individuals with bad or no credit history.
Important Considerations
While loans against LIC policies come with numerous benefits, borrowers should be cautious:
Repayment Responsibility: Ensure timely repayment to avoid loss of policy benefits.
Understanding Terms: Fully understand the loan terms, including interest rates, penalties, and repayment conditions.
Loan Amount Limits: The loan amount is limited to the surrender value, which may not meet all financial needs.
Policy Maturity: Loans can only be taken against policies that have accumulated a certain surrender value, usually after a few years.
Conclusion
Taking a loan against an LIC policy is a prudent financial strategy during cash crunch situations or financial emergencies. It offers a secured way to access funds with lower interest rates and flexible repayment options. However, like any other loan, it is crucial to repay it on time to avoid losing policy benefits and ensure continued financial protection for beneficiaries. Understanding the loan process, benefits, and considerations can help borrowers make informed decisions and effectively manage their financial needs.
A life insurance policy primarily aims to provide financial protection to the beneficiaries in the unfortunate event of the policyholder’s death. However, did you know that these policies can also serve as collateral for securing loans? Here, we explore the concept of loans against LIC policies, their features, benefits, and the process of obtaining such loans.
Understanding Loans Against LIC Policies
A loan against an LIC (Life Insurance Corporation) policy is a type of secured loan where the policyholder uses their LIC policy as collateral. The lender, typically a bank or financial institution, holds the policy until the loan is fully repaid. If the borrower defaults on the loan, the lender has the right to claim the benefits accrued under the policy.
Eligibility for Loan Against LIC Policies
Not all LIC policies are eligible for loans. Generally, endowment or money-back policies, which accumulate a surrender value, qualify as security for loans. Term insurance plans and unit-linked insurance plans (ULIPs) are usually excluded. Here’s a brief look at the types of LIC policies that can be used for loans:
Endowment Policies
Money-Back Policies
Whole Life Policies
Policies that do not accumulate a surrender value, such as pure term plans, are not eligible for loans.
Key Details of LIC Endowment Plans
Below is a detailed look at the loan features associated with various LIC endowment plans:
LIC’s Bima Jyoti
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC’s Bima Ratna
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC's Dhan Sanchay
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly
LIC’s Jeevan Azad
Eligibility: After paying 2 years of premiums
Loan Amount: Up to 90% for in-force policies, 80% for paid-up policies
Interest Rate: 10-year G-Sec Rate + 3%, compounded half-yearly or the yield earned on the Corporation’s Non-Linked Non-participating fund + 1%, whichever is higher.
Applying for a Loan Against LIC Policy
Loans against LIC policies can be availed either online or offline. Here’s how:
Online Application Process
Registration: Register on the LIC portal.
Navigate: Go to ‘Online Services’ and select ‘Online Loans’.
Request: Place a request under the ‘Online Loan Request’ tab.
Verification: Upload KYC documents for verification.
Offline Application Process
Visit Branch: Approach the nearest LIC office or a partnering bank.
Documents: Carry necessary documents like the policy document and KYC proofs.
Sign Forms: Fill out and sign the required loan application forms.
Approval: Upon approval, receive the loan amount either as a lump sum or an overdraft.
Loan Amount and Repayment
The amount one can borrow is typically between 70-90% of the policy's surrender value, varying with the policy and lender. LIC offers flexible repayment options, including:
EMIs: Regular EMIs covering both interest and principal.
Interest-Only: Pay only interest periodically, with principal repayment due at maturity.
Adjustment: Interest paid regularly, with the principal adjusted against maturity benefits.
Interest Rates
The interest rates on loans against LIC policies typically range from 9.00% to 10.00% per annum. Banks may charge higher rates, generally between 10.00% and 15.00%.
Advantages of Loans Against LIC Policies
Lower Interest Rates: Generally lower than personal loans or credit card rates.
No Credit Check: Credit score not required, beneficial for those with poor or no credit history.
Continued Coverage: Life cover continues during the loan tenure.
Quick Processing: Faster processing time compared to other loan types.
Flexible Repayment: Various repayment options reduce financial burden.
Features and Benefits
Secured Loan: Lower risk and interest rate due to policy collateral.
Usage Flexibility: Loan can be used for any purpose, similar to personal loans.
Minimal Documentation: Easy and quick approval process.
Protection for Beneficiaries: In case of the insured's death, the outstanding loan is deducted from the policy benefits.
No Impact on Credit Score: Suitable for individuals with bad or no credit history.
Important Considerations
While loans against LIC policies come with numerous benefits, borrowers should be cautious:
Repayment Responsibility: Ensure timely repayment to avoid loss of policy benefits.
Understanding Terms: Fully understand the loan terms, including interest rates, penalties, and repayment conditions.
Loan Amount Limits: The loan amount is limited to the surrender value, which may not meet all financial needs.
Policy Maturity: Loans can only be taken against policies that have accumulated a certain surrender value, usually after a few years.
Conclusion
Taking a loan against an LIC policy is a prudent financial strategy during cash crunch situations or financial emergencies. It offers a secured way to access funds with lower interest rates and flexible repayment options. However, like any other loan, it is crucial to repay it on time to avoid losing policy benefits and ensure continued financial protection for beneficiaries. Understanding the loan process, benefits, and considerations can help borrowers make informed decisions and effectively manage their financial needs.
Author
Pluto Team
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