How to Get a Loan Against Your LIC Policy: A Complete Guide
Life Insurance Corporation (LIC) policies are not just a safety net for the future; they can also act as a financial backup in times of need. If you're facing a cash crunch but don't want to liquidate your investments or take high-interest personal loans, a loan against your LIC policy can be a great solution. But how does this work? Let’s dive into everything you need to know about getting a loan against your LIC policy.
What is a Loan Against LIC Policy?
A loan against an LIC policy is a secured loan where your LIC policy serves as collateral. It allows policyholders to borrow money from LIC or a financial institution while keeping the policy intact. The loan amount is generally a percentage of the surrender value of the policy.
This type of loan is often preferred because it has lower interest rates compared to personal loans, is easy to avail, and doesn’t impact your credit score significantly.
Key Features and Benefits of a Loan Against LIC Policy
1. Competitive Interest Rates
- Loans against LIC policies typically offer interest rates ranging between 8% to 10%, much lower than personal loans or credit card borrowing.
- Since the loan is secured, lenders are more confident, resulting in favorable terms for borrowers.
2. No Credit Score Check
- Unlike other loans, your credit score isn't the primary factor for approval. The surrender value of your policy is the primary determinant of the loan amount.
3. Quick Approval Process
- With minimal paperwork and eligibility checks, you can get approval within 48 to 72 hours.
4. Flexible Repayment Options
- Borrowers have the freedom to repay the loan and continue with the LIC policy as usual.
- You can even opt to pay only the interest during the policy term and settle the principal later.
5. Policy Benefits Remain Intact
- Even after availing the loan, the policyholder continues to enjoy the insurance cover and other policy benefits.
Eligibility Criteria for Loan Against LIC Policy
To apply for a loan against your LIC policy, you need to meet the following conditions:
-
Policy Maturity:
The policy should have acquired a surrender value, which typically happens after paying premiums for at least 2-3 years. -
Policy Type:
Not all LIC policies are eligible. Loans can only be availed against endowment or money-back policies and not term plans. -
Ownership:
The policyholder must be the same person applying for the loan. -
Outstanding Dues:
Ensure there are no pending premiums or dues on your policy.
LIC Loan Calculator – Check Your Loan Eligibility & EMIs Instantly
Step-by-Step Process to Get a Loan Against Your LIC Policy
Step 1: Check Eligibility
Confirm whether your LIC policy is eligible for a loan by reviewing the surrender value and the type of policy.
Step 2: Calculate the Loan Amount
LIC or the lender typically offers a loan amount of up to 85%-90% of the surrender value. You can check the surrender value of your policy in your LIC account or by contacting an LIC branch.
Step 3: Gather Required Documents
You’ll need the following:
- Original LIC policy bond
- Loan application form (available at the LIC branch or online)
- ID proof (Aadhaar, PAN, etc.)
- Address proof (utility bills, ration card, etc.)
- Recent passport-size photograph
Step 4: Submit Application
Visit your nearest LIC branch or apply online through the LIC e-services portal. Submit your documents and complete the application process.
Step 5: Approval and Disbursement
Once the application is processed, the loan is approved. The loan amount is directly transferred to your bank account, usually within 2-3 working days.
How to Repay the Loan?
1. Regular EMI Payments
You can repay the loan in EMIs, including both principal and interest, over the agreed tenure.
2. Interest-Only Option
Some policyholders opt to pay only the interest during the loan tenure and settle the principal when the policy matures or is surrendered.
3. Policy Surrender
If you’re unable to repay the loan, LIC may surrender the policy and use the proceeds to recover the loan amount.
Comparison Between a Loan Against LIC Policy and Personal Loans
| Feature | Loan Against LIC Policy | Personal Loan |
|---|---|---|
| Collateral Required | Yes | No |
| Interest Rate | Lower (8-10%) | Higher (12-20%) |
| Credit Score Dependency | Minimal | High |
| Approval Time | Faster (2-3 days) | Moderate (5-7 days) |
| Repayment Options | Flexible | Fixed |
Things to Keep in Mind Before Taking a Loan Against LIC Policy
1. Understand the Impact on Policy Benefits
While the policy remains active, any unpaid loan amount will be deducted from the final claim if not repaid on time.
2. Loan Limitations
The maximum loan amount depends on the surrender value, not the total sum assured of your policy.
3. Penalty for Default
Ensure timely repayment to avoid penalties or policy surrender.
4. Consult an Expert
If you’re unsure about the terms or need help deciding, consult an LIC advisor or a financial expert.
Common FAQs About Loans Against LIC Policies
1. Can I take multiple loans against the same policy?
Yes, but the total loan amount cannot exceed the surrender value of the policy.
2. What happens if I default on the loan repayment?
LIC may deduct the outstanding loan amount from the policy maturity or surrender proceeds.
3. Can I prepay the loan?
Yes, LIC allows prepayment of loans without any penalties.
4. Is it possible to apply for this loan online?
Yes, LIC’s e-services portal allows you to apply online and track your loan application.
5. How long does it take to get the loan?
Typically, it takes 2-3 working days for approval and disbursement after submitting all necessary documents.
Conclusion
A loan against your LIC policy is a smart and secure way to meet financial needs without disrupting your investments or insurance coverage. With low-interest rates, flexible repayment options, and minimal formalities, it’s an ideal alternative to high-interest loans. However, always weigh the pros and cons, calculate your loan eligibility, and ensure timely repayment to keep your policy benefits intact.
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