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Eligibility Criteria For Loan Against Endowment Policy

An endowment plan is a life insurance plan that is in the form of a contract which is designed to pay out a lump sum when the term of the policy reaches maturity. This also includes survival benefit, and the pay-out is given to the policyholder. Furthermore, the endowment policy gives certain beneficiaries, mentioned in the policy, a death benefit payout on the unforeseen demise of the holder of the policy. Endowment plans are for individuals who require risk-free financial products. These are also famous for providing individuals with many benefits.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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If you purchase an endowment plan, you stand to fulfil dual financial goals. Your plan gives you a method to collect a pre-determined corpus of wealth, which you can use for any purpose in the future, such as financing a child’s marriage, or using it as a retirement plan. In addition to this, your endowment plan gives you the peace of mind that your family (beneficiaries) will be looked after financially should your unforeseen demise occur. A straightforward life insurance plus savings tool, an endowment plan is a good way to save, especially if you start saving with your plan while you are early in your career and earning from a regular income source.

 

Taking a Loan against an Endowment Policy

 

Cash requirements may come up suddenly and you may find yourself in urgent need of cash. You could be in the throes of a medical emergency, for instance. If such a situation occurs, it is possible to turn to your life insurance policy for assistance. It's possible to take a loan against a policy. However, there are certain policies and plans that allow you to take loans against the value of the insurance policy and some that do not. 1So, the question arises: can you take a loan against an endowment insurance policy? Yes, you can do this depending on your policy terms and conditions.

Any policy or plan that contains an underlying value is eligible for you to take a loan with. As far as regular term insurance goes, you cannot take a loan. However, investment-cum-savings plans allow you to take a loan against their cash value. You may be wondering what these types of plans entail. If you have a ULIP, you cannot take a loan as certain regulations apply, barring you from taking loans. However, specific conventional plans like endowment plans are eligible for giving you loans1. When can you take a loan against your endowment plan? Obviously, on the initial day you buy your policy, you are not eligible to take your loan. However, when you meet eligibility criteria as per the terms of the policy, you can easily take a loan.

 

What is the Eligibility Criterion for Taking a Loan against an Endowment Policy?

 

Once your endowment plan has acquired what is known as a “surrender value”, you may apply for a loan against your policy. The surrender value of the policy is the amount you would be paid back, that is, the cash value of all premiums paid so far (dependent on your regular premium payment), should you opt to surrender the policy or cease to hold it any longer, before its maturity. In typical traditional policies, the policy reaches a minimal assured surrender value once two or three annual premiums are made. The surrender value will increase as every year goes by. However, this is entirely dependent on the insurer you choose, and the kind of endowment plan you have. Knowing about the surrender value of your endowment policy is very important if you wish to take a loan, as the loan eligibility is dependent on this factor. In brief, here is the eligibility criteria to get a loan against an endowment policy and is subject to the policy terms and conditions:

  • Insurers grant loans against the surrender value of an endowment policy
  • Your policy should have reached a stage in which the surrender value is applicable
  • Generally, you are eligible to get a loan of up to 70% to 90% of the surrender value
  • You are eligible for a loan that is less than the surrender value (cash value of premiums paid)

Your insurance company has the authority to assign and secure your endowment plan in order to secure loan repayment. All repayments on the loan have to be made by you before the date of maturity of the tenure of the policy. In case you fail to repay your loan against your endowment plan, your insurer can enforce a foreclosure on the policy (terminate it). As you know, an endowment plan is a life insurance plan as well as an investment plan. Hence, if the unfortunate demise of the policyholder occurs and claims are made (for the death benefit), the insurer has the authority to deduct any balance amount arising from the loan with interest, and then pay the death benefit from the remaining amount.

 

Conclusion

 

An endowment insurance plan is a good way to protect your family’s future in your absence, as well as to secure your future. As long as you pay your premiums on time, you are entitled to get a loan against your plan, and this is an added highlight of an endowment plan. Endowment plans work for your long-term saving goals, so you should opt for such plans early. You can also look at other insurance plans that cover you for certain emergencies like illnesses, in a health insurance plan with a critical illness cover. For other kinds of life insurance plans, you may compare plans and find schemes that suit your individual needs and the requirements of your own family.

Source:

1https://www.livemint.com/Money/OyJWRWlXhp7zQLz4OhcvYO/You-can-take-a-loan-on-some-types-of-life-insurance-policies.html

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

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