How To Apply For Loan Against Insurance Policy

 

Steps on how to apply for a loan against insurance

 

While the application process for a loan against an insurance policy may differ slightly based on the terms and conditions of each insurer or lender, here are some basic guidelines and steps to apply for a loan against insurance:

 

1. Verify Eligibility

 

Check if your insurance policy is eligible for availing a loan. Ensure that your insurance policy has a surrender value (applicable for money-back policies and endowment policies). Term plans are not eligible for loans as they do not have any surrender value¹.

 

2. Determine the surrender value:

 

It is necessary to ensure that your policy has a surrender value and can be assigned in the favour of the lender/insurer.²

 

3. Calculate the Loan Amount

 

The loan amount is generally upto 90% (may varies product wise) of the surrender value of the policy².

 

4. Contact your insurance company

 

Reach to your insurer to understand the loan application process and the documents required. Insurance company’s executive will guide you through the loan process verify your eligibility, and provide details on interest rates and associated charges¹.

 

5. Submit the application form and the relevant documents

 

Duly fill the application form with your details and policy details and provide the requisite documents. You can apply both online on its website or offline at the branch of the insurance company¹.

 

6. Processing of the loan

 

Once the application is submitted, the executives of the insurance company will verify your details and upon approval, the amount will be disbursed through bank transfer or cheque¹.

 

Application Fees & Other Charges for Loan Against Insurance Policy

 

The application fee or charge for a loan against insurance policy depends on the insurance company. There might be a fee involved for processing the loan request or for sanctioning the funds. You can contact the insurance company to find the underlying fees and charges for the loan.

 

Document(s) required for a loan against an insurance policy

 

You might need to submit certain documents to the insurance company to obtain a loan against an insurance policy. These documents are necessary to process the loan application. Some of the documents required for a loan against an insurance policy might include the following¹

• Duly filled and signed loan application form
• Deed of Assignment, which will assign your insurance policy in favour of the insurance company/lender
• Insurance policy document(optional)
• Other documents are required by the insurance company.
• Bank Proof
  • Cancelled Cheque Leaf with Pre-Printed Account Holder Name, Bank Account Number, IFSC code with Bank Branch Details or Bank Passbook with Printed Account Holder Name, Bank Account Number, IFSC code with Bank Branch Details.
  • Latest Past six months Bank Statement with Account Holder Name, Bank Account Number, IFSC code with Bank Branch Details.

• NRI Customer: Above process remains the same for NRI Customers, additionally they have to provide the following:
  • Only NRO/NRE Bank Accounts are allowed, if customer has provided NRE account then they have to provide Premium Debit proof also.

 

Conclusion

 

While obtaining a loan against an insurance policy can be a convenient and accessible financial solution, it’s beneficial to compare loan terms from other lenders in addition to your insurance provider. Further, it is also necessary to understand the repayment terms and interest rates before you finalize the loan. Remember, failure to repay the loan amount or the interest can lead to foreclosure or reduced policy benefits1. So, repay the loan and the interest if you are looking to get the full benefits at the time of a claim. 

 

Frequently Asked Questions

 

 

1. Which types of insurance policies are eligible for loans?

 

The insurance policies which have a surrender value are eligible for loans. Endowment plans and money-back plans are generally eligible and term insurance policies and unit-linked plans are not eligible for loans as they do have any surrender value².

 

2. Are there any risks involved in taking a loan against an insurance policy?

 

Yes, taking a loan against an insurance policy involves a risk of reduction of the policy benefit pay-out or foreclosure of the policy if you are unable to pay the interest and the loan amount. The outstanding amount of the loan will be deducted from the policy benefits if the loan is outstanding on the date of a claim.

 

3. Can I apply for multiple loans at the same time?

 

Yes, you can apply for multiple loans at the same time from same lender/ insurance company, subject to the maximum loan amount applicable to your insurance policy. That is, the total amount of all the loans should not exceed the allowed percentage of the surrender value of your insurance policy.

 

4. Does taking a loan against an insurance policy affect my claims?

 

Taking a loan against your insurance policy does not affect your claims as long as you make timely payments of the interest and ensure repayment of the loan within the policy tenure. In the event of failure, the entire outstanding amount, including both the loan amount and interest will be deducted from the claim pay-out.

 

5. Is the loan amount taxable?

 

No, the life insurance loan amount is not taxable3.If you surrender your policy or it lapses, you will be required to pay taxes on any investment gains, and your outstanding loan will be deducted from your payout.

 

BJAZ-WEB-EC-11512/24