Did you know that your life insurance plan can serve the dual purpose of providing financial security throughout your life and lending you money during tough times? Read on to know how you can apply for a loan against a life insurance policy.
The concept of life insurance was first introduced to provide financial security to the applicant throughout his life. It is a guarantee that the policyholder will get guaranteed income in case of death of the insured during the policy maturity or during the term of the plan. However, as time goes on, Life Insurance Policies It is now increasingly used by policyholders to avail credit facilities during financial crisis. This blog explores the possibilities for an insured to get a loan against a life insurance policy.
When you need a large sum of money to buy something specific (such as a property or material goods such as a vehicle), one usually looks for the option of borrowing money from a moneylender (such as a bank or some other financial institution). ) However, it is not always necessary to rely on unsecured loans as the only option to meet financial obligations.
Life insurance now guarantees its policyholders the facility of availing alternative loans against their purchased insurance plans. It only means guaranteed financial security for the policyholder and his/her loved ones in the future and a means to depend on cash when needed.
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Advantages of Loan over Life Insurance
Let’s take a look at some of the key benefits of getting a loan against your life insurance policy:
- The main advantage of taking a personal loan against life insurance is the relatively low interest rate. Interest rates for personal loans from banks range from 12% to 24%, while the same personal loan against a life insurance policy is available at an interest rate of 10.5%-12.5%.
- Loan against life insurance can be helpful for those with low CIBIL score. The CIBIL score reflects how creditworthy an individual is; Hence, people with low CIBIL score may find it difficult to get loans. However, banks do not evaluate an individual’s CIBIL score while getting a loan against life insurance and he/she can be given a loan easily without any problem.
- Getting a loan against insurance involves a hassle-free process with minimum documents required. Also, the chances of loan application being rejected are very less.
>>Interest Rate on Postal Life Insurance (PLI) Loans
How to take loan on life insurance?
We have looked at the various advantages of getting a loan against your life insurance policy during tough times versus seeking a loan from a bank or financial institution. Now let’s take a look at the various steps involved in this process:
- Inquire about the loan facility from the insurance company you have purchased the life insurance policy from.
- Once confirmed, inquire about the eligible loan amount offered by the company to its policyholders. Generally, the loan amount depends on the specific type of life insurance policy purchased by the policyholder and the remaining term of the policy.
- Submit a loan application to the insurer if you find it suitable for your needs. It also involves assigning the policy to the insurer/bank that provides the loan against the life insurance. Assignment of policy means transfer of all policy rights to the insurer/bank (lender) for the duration of the loan.
- The lender will require you to clearly mention all the policy details and the loan amount in the format specified by the insurer/bank.
- The next step is to pay the loan processing fee and interest rate + other related charges to the bank.
- After careful review of the policy details and relevant documents, the insurer/bank will approve the loan within 2-3 working days (this may vary between different insurers).
- Once approved, the loan amount is disbursed to the borrower and all policy rights are automatically transferred to the lender. After recovery of loan amount the policy is re-assigned to the insurer through endorsement.
Loan companies on life insurance policies
If you are taking a loan against life insurance, it is worth knowing the interest rate for the loan at some leading banks and financial institutions:
|Name of Insurer/Bank/Lender||The rate of interest paid on the loan amount disbursed|
|LIC Housing Finance||14.80% and above|
|Bajaj Finserv||13% and above|
|Kotak Mahindra Bank||10.75% and above|
|Axis Bank||10.25% per annum and above|
read more: What are the best benefits of term insurance if you have a loan?
Wrapping it up
This blog describes the exact process for applying for a loan against a life insurance policy. It also mentions the interest rate offered by different insurers for your better understanding. Know that taking a loan against your existing life insurance policy is always wiser than taking a loan from a bank/any other financial institution. For more information on getting a loan against life insurance or for details on various life insurance plans to suit your needs, visit PayBima Online.
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Frequently Asked Questions on Loan Against Life Insurance Policy
Can I get a loan on a life insurance policy?
Some insurers encourage their policyholders to take a loan facility against the life insurance policy purchased from the insurance company. The policyholder has to submit the loan application form and hand over the original life insurance policy document to the insurer at the time of availing the loan.
What is the minimum loan amount against insurance policies?
A minimum of Rs. 5 lakh to Rs. 5 crore can be given as loan for life insurance policies. However, it is always good to check with your insurer about the specific loan amount or tenure of the loan provided.
How soon can I take out a loan against my life insurance?
Your insurer will usually allow you to take out a loan facility against the life insurance policy when there is enough cash value built into the policy to facilitate borrowing the specified amount required.