Can You Secure a Loan Against Your LIC Policy?



A life insurance policy primarily provides financial protection to beneficiaries if the policyholder passes away. Unexpectedly, these policies can also be used as collateral for loans. Explore loans against Life Insurance Corporation (LIC) policies, emphasizing features, benefits, and the application procedure.
Online Process:
Understanding Loans Against LIC Policies
A loan against an LIC policy is a secured loan with your LIC policy as collateral. Typically, banks or financial institutions hold the policy until the loan is fully repaid. If there's a default, lenders can claim the policy's accrued benefits.Eligibility for Loan Against LIC Policies
Not every LIC policy qualifies for loans. Usually, endowment and money-back plans that accrue surrender value are accepted as collateral. Pure term plans and unit-linked insurance plans (ULIPs) generally do not qualify. Frequent LIC policies used for loans include:- Endowment Policies
- Money-Back Policies
- Whole Life Policies
Key Details of LIC Endowment Plans
Below are major features of loans tied to typical LIC endowment plans:- LIC’s Bima Jyoti: Eligible after 2 years' premiums; up to 90% for active policies, 80% for paid-up; interest at 10-year G-Sec Rate + 3%, compounded half-yearly.
- LIC’s Bima Ratna: Similar terms as Bima Jyoti.
- LIC's Dhan Sanchay: Similar terms as Bima Jyoti.
- LIC’s Jeevan Azad: Slight difference in interest calculation; either 10-year G-Sec Rate + 3% or Non-Linked Non-participating fund yield + 1%, whichever is greater.
Applying for a Loan Against LIC Policy
You can apply for loans against LIC policies both online or offline:Online Process:
- Register on the LIC portal.
- Go to ‘Online Services’ and choose ‘Online Loans’.
- Submit a request under ‘Online Loan Request’.
- Upload KYC documents for verification.
- Visit an LIC office or a partnering bank.
- Carry required documents like policy and KYC proofs.
- Fill out and sign the loan application forms.
- Once approved, receive funds as a lump sum or overdraft.
Loan Amount and Repayment
Borrowers usually secure between 70-90% of the policy's surrender value, based on policy and lender terms. LIC offers flexible repayment methods:- EMIs: Covering both interest and principal.
- Interest-Only: Periodic interest payments with principal due at maturity.
- Adjustment: Regular interest with the principal adjusted against maturity benefits.
Interest Rates
Loan interest rates for LIC policies generally range from 9.00% to 10.00% annually, though some banks may set rates as high as 10.00% to 15.00%.Advantages of Loans Against LIC Policies
- Lower Interest Rates: Usually lower than personal loan or credit card rates.
- No Credit Check: Good for individuals with poor or no credit history.
- Continued Coverage: Life cover remains active during the loan period.
- Quick Processing: Faster than most loan types.
- Flexible Repayment: Various options to ease the financial burden.
Features and Benefits
- Secured Loan: Lower risk and interest due to policy acting as collateral.
- Usage Flexibility: Funds usable for any purpose, similar to personal loans.
- Minimal Documentation: Fast and straightforward approval.
- Protection for Beneficiaries: If the insured dies, outstanding loans are deducted from policy benefits.
- No Impact on Credit Score: Ideal for those with bad or no credit history.
Important Considerations
While advantageous, loans against LIC policies require careful thought:- Repayment Responsibility: Ensure timely payments to protect policy benefits.
- Understanding Terms: Clearly understand all loan terms, including interest rates and penalties.
- Loan Amount Limits: Limited to surrender value, might not fulfill all financial needs.
- Policy Maturity: Loans need a policy with accrued surrender value, typically after several years.
Conclusion
Securing a loan against an LIC policy can be a reliable financial approach during cash shortages or emergencies, offering secured funds at lower interest rates with flexible repayment. Timely repayment is crucial to preserve policy benefits, ensuring ongoing financial safety for beneficiaries. Understanding the process, benefits, and limitations assists in smart financial decision-making and management.


