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Benefits Of Loan Against Insurance Policy

Borrowing against your insurance policy provides a convenient and easy way to get funds by using the surrender value of your life insurance policy as collateral1. This surrender value reflects the savings you have built up within your policy. When you avail of a loan against your insurance policy, you are essentially borrowing money from your assets, i.e. your insurance policy. Read More

The insurer lends a specific amount, which is deducted from your policy's surrender value. Interest is charged on the loan, which will be deducted along with the loan principal from the policy benefits if you cannot repay the loan or the interest2.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: 22th Nov 2024
Modified on: 22th Nov 2024
Reading Time: 15 Mins
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Taking a loan against your insurance plan can be a smart financial move, allowing you to access immediate funds quickly without needing a lengthy application process, unlike traditional loans. By leveraging the surrender value of your insurance policy, you can easily fulfil your urgent financial needs while retaining the benefits of your insurance policy coverage.

 

Top benefits of loan against insurance policy

 

Taking a loan against an insurance policy can be beneficial for various reasons, some of which are stated below2:

 

1. Affordable Rates of Interest

 

One of the top benefits of loan against insurance policy is the affordable interest rate. You can get a pocket-friendly interest rate which makes the loan repayment easy and affordable.

 

2. Quick Access to Funds

 

Another benefit of taking a loan against your insurance policy is its instant disbursal and quick access to funds. As the funds are disbursed based on the surrender value of your policy, the process is simple and quick, and you can get the money instantly during emergencies or when immediate financial assistance is needed.

 

3. No Requirement of Credit Check/Report

 

Loan against your insurance policy is beneficial for individuals having low credit or no credit score. Individuals who cannot avail the traditional loans due to low credit scores can easily do so by taking a loan against their insurance policy which does not require any credit check. Insurers lends the money based on the surrender value of your policy.

 

4. No Repayment Schedule

 

Loan against your insurance policy offers flexible repayment terms compared to traditional loans. You are not required to repay the loan as per a specified repayment schedule and get the flexibility to repay the amount at your own pace, subject to timely interest payments to keep the policy in force. This is yet another one of the exciting benefits of taking a loan against your insurance policy. Further, if the total amount of the loan including the loan principal and the outstanding interest, exceeds the surrender value of your insurance policy, it may lead to foreclosure (for lapse paid up policy) and cessation of the insurance coverage.

Loans against your insurance policy neither check your credit score for eligibility nor affect it in any manner. These loans are not based on your credit history or creditworthiness and are paid based on your insurance policy2.

 

5. Continued Insurance Coverage

 

One of the most attractive benefits of taking a loan against insurance is that you don’t lose your insurance coverage. You can enjoy all the benefits of your insurance coverage alongside availing the loan against your policy. Your insurance policy continues to be in effect during the loan tenure, ensuring that your loved ones remain protected1.

 

6. No Need for Collateral

 

Loans against an insurance policy are secured by the surrender value of the insurance policy and do not require any additional collateral without having to risk other assets.

These are some of the top benefits of a loan against an insurance policy you can avail yourself of.

 

Who can benefit from a Loan Against Insurance Policy?

 

A loan against an insurance policy can benefit several individuals, especially those having traditional life insurance policies, such as endowment plans and money-back plans which have accumulated surrender value1. These loans are ideal for policyholders requiring immediate money for medical expenses, emergencies, or any other financial assistance without the hassles of the process of traditional loans. Further, individuals with lower credit scores can benefit from this option as it does not require a credit check, making it easily accessible to a wider range of individuals2.

 

Conclusion

 

The Insurance Regulatory and Development Authority of India (IRDAI)4 recently introduced the mandatory feature of policy loans in all life insurance savings policies. The new feature aimed at benefiting the policyholders and allowing them to utilise the accumulated funds in their life insurance policy’s surrender value through a policy loan feature3. Loan against an insurance policy is a practical financial strategy that can help policyholders easily manage unexpected expenses or financial needs while maintaining their insurance coverage benefits.

 

FAQs

 

1. What are the processing charges?

 

Processing charges vary from lender to lender but are typically lower than those for traditional loans. It is advisable to check with your insurer for specific details on the processing charges for loans against the insurance policy.

 

2. How should I apply for a loan against an insurance policy?

 

To apply for a loan against an insurance policy, contact your insurer or agent. They will guide you through the application process, often requiring basic information about your insurance policy and the desired loan amount.

 

3. How is interest calculated for a loan against an insurance policy?

 

 Interest for a loan against an insurance policy is generally calculated on the outstanding dues under the loan. The specific rates of interest depend on the terms specified by the lender and as specified in the insurance policy.

 

4. Can I take a loan  by pledging my insurance policy?

 

Yes, you can pledge your savings-oriented insurance policies, like endowment or money-back plans, and get a loan against their surrender value. Such loans are offered by financial institutions where your insurance policy is considered a collateral security and the loan is offered against its surrender value5.

 

5. Is there a minimum or maximum loan amount I can take?

 

The minimum or maximum amount of the loan depends on the surrender value of your insurance policy and the terms and policies of the insurance company.

Reference

BJAZ-WEB-EC-11352/24

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Disclaimers:
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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

*Conditions Apply – The Guaranteed benefits are dependent on policy term, premium payment term availed along with other variable factors. For more details please refer to sales brochure.

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.

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Disclaimer

*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


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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Disclaimer

%%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%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

*Above illustration is for Bajaj Allianz Life eTouch II - A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN:116N198V01) considering Male aged 25years | 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. 5,092. 2nd Year onwards premium Rs. 5,520. Total Premium Rs. 1,65,172 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage: 40, Income Payout Percentage: 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and 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. 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.

##Tax benefits as per prevailing Section 10(10D) and Section 80C (under old tax regime) 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%.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency on first year's premium.

$Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium means total of all the premiums paid under the base product, excluding any extra premium and taxes, if collected explicitly.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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