All you need to know about loan against a life insurance policy
If you are an employee or businessman who needs extra cash for your expenses? Then, you can avail of a loan or sell your assets for cash that will help achieve your financial goals. But do you know you can also apply for loans if you have a life insurance policy? Yes, you can! But first, you need to learn more about the process and other things in detail.
Let us take the example of Mr. Parekh who is a merchant. He wants to extend his business to earn high profits and revenues. However, Mr. Parekh is not able to get funds from moneylenders and banks due to various problems. So, he came to know that life insurance policies offer loans. Since he had bought some insurance plans for his family, his loan got approved soon, and now Mr. Parekh runs a successful business.
6 Things to remember while taking loan against your Life Insurance Policy
- Surrender Value
- All insurance policies are not eligible for loans
- Waiting Period
- Interest Charged
- Repayment Options
- Default on repayment of a loan
1. Surrender Value
Before you apply for a loan, you need to evaluate the surrender value with more attention that will help make the right decision. A surrender value is the present value of the policy that determines your loan amount. You are eligible to get an 80% to 90% loan amount based on the surrender value in many cases. Your insurance provider will determine the same depending on the sum assured and the number of premiums paid.
2. All insurance policies are not eligible for loans
Not all policies are eligible for loans, and you need to check out the details with the insurance company before choosing them. For example, unit-linked insurance plans (ULIPS) and term insurance plans won’t allow you to get a loan. Therefore, you should check the eligibility while applying for a loan that will help meet essential needs.
3. Waiting Period
You can’t apply for a loan immediately because all insurance policies have a waiting period of two to three years. There shouldn’t be any default on your premium payments, and you need to continue the same after getting a loan.
4. Interest Charged
An insurance provider fixes the interest rate based on the plan. The interest rate is fixed and it may vary from one insurance company to another insurance company, you should compare them online before applying for a loan.
5. Repayment Options
As a loan buyer, you should consider the repayment options in detail to help you choose one accordingly. You can repay the principal amount along with interest or only the interest amount. If you want to pay only the interest, then an insurance provider will deduct the principal from the claim amount during the settlement process. Your nominee gets the remaining amount only after deducting the principal loan amount. You should repay the amount on time because the interest will keep on adding to your balance, resulting in more problems.
6. Default on repayment of a loan
Your insurance will lapse in case of default in repayment of premiums. You should know how default in payment of future premiums will affect your insurance policy. It is essential to consult with your insurance provider before choosing a loan.
What are the advantages of taking a loan against life insurance?
- Quick approval and dispersal
- You may get a low-interest rate
- Allows you to get loans for emergency purposes
- No collateral is required
1. Quick approval and dispersal
The primary advantage of taking a loan against your life insurance is that it allows you to receive the amount as soon as possible. This is because the approval process is quicker with minimal documentation and paperwork. It will take only a few days to get approval for your loan amount after checking your credit score.
2. You may get a low interest rate
The interest rates on loans against life insurance policies are low when compared to personal loans. Therefore, there is a chance that you may get a loan at cheap interest rates based on the premiums paid and the number of premiums paid. In addition, with lower interest, you can repay the amounts quickly that will save your expenses.
3. Allows you to get loans for emergency purposes
Getting personal loans for emergency purposes involves several challenges, while you can apply for the same against your insurance policies easily. You can borrow money from your insurance provider anytime that will help you manage financial problems significantly.
4. No collateral is required
There is no collateral required to get a loan against the LIC policy because the coverage itself acts as a guarantee. This will help avail loans as early as possible, enabling you to accomplish financial goals.
What is the eligibility to get a loan against an insurance plan?
- Minimum age of 21 years while applying for a loan
- A resident of India having an insurance policy
How to apply for a loan against your insurance policy?
You can contact your insurance provider to know how to apply for a loan that will help reduce your financial burden. Your insurance company will tell you about the documents required for the loans and other details. You should follow them properly, which gives ways to receive funds at the earliest. Apart from that, you can apply for a policy loan online, and an insurance company will review your application based on your loan requirements and other things.
How to choose a policy with loan coverage?
Anyone who wants to buy a new insurance policy should evaluate whether it provides loan coverage along with death benefits. It would be best to get quotes from multiple insurance providers to select a plan that suits your budget. You can get a loan against a life insurance policy that provides ways to ensure financial stability.
So, if you are looking for a loan, do consider your life insurance policy once.