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Factors To Consider For A Loan Against Life Insurance

A loan against a life insurance policy can be a practical financial solution for those in need of immediate funds. You can avail secured loan against your insurance policy, using it as a collateral without surrendering the insurance policy or affecting life insurance coverage1. Alternatively, most life insurance policies offer an option to take a loan against the policy subject to certain terms and conditions specified in the policy document1.Read More

However, before availing of a loan against your insurance policy, it’s essential to understand the factors and implications involved. Let us understand the factors for a loan against life insurance.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: 13th Nov 2024
Modified on: 13th Aug 2024
Reading Time: 15 Mins
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Factors to be considered for a loan against a life insurance policy:

 

 

1. Eligibility

 

 

a. Policy Eligibility

 

The first step is to confirm whether your insurance policy is eligible for a loan. Check whether your life insurance policy is eligible to serve as a collateral for the loan you want to take1. Life insurance policies with a savings component, such as endowment plans and money-back plans, are eligible for loan1. On the other hand, policies that do not have a savings component, such as term plans, do not qualify for loans1.

Further, to avail loans under the plan, it is necessary that your policy acquires a surrender value1. A policy acquires surrender value if you have paid the premiums for a minimum tenure as may be required under the individual policy. Review your policy documents to determine eligibility.

 

b. Policyholder Eligibility

 

Regarding pledging insurance policies as collateral with banks and non-banking financial companies (NBFCs), there might be specific eligibility criteria for borrowers. These might include minimum age, income, credit score, etc2.

 

2. Documentation

 

Check the list of documents required to avail loan against the insurance policy. The documents primarily include a prescribed application form and a signed deed of assignment for assigning your rights in the policy to the lender to avail the loan along with the following documents4:

  • Policy document
  • Identity proof
  • Address proof
  • The insurance company may require any other document to approve the loan.

 

Amount of the Loan

 

Insurers usually allow you to borrow a percentage of your policy’s surrender value—often up to 85% to 90% (may vary basis product). Check the maximum loan that you can borrow against your policy1.

 

4. Interest rate

 

You have to pay an interest on the loan availed against your life insurance policy. Check the interest rate to understand the additional expense incurred on availing of the loan1.

 

 

5. Policy benefits

 

If your loan is not repaid and a claim is made under the life insurance policy, the outstanding loan amount will be deducted from the policy benefits before paying the claim3.

These are some of the important factors to be considered for a loan against a life insurance policy.

 

Who Should Consider a Loan Against Insurance?

 

A loan against insurance can be chosen by anyone who wants funds for their  financial needs. If you need funds for your personal needs and you are short on savings, you can get a loan against your insurance policy. The loan can give you the funds without affecting your policy’s coverage.

 

To wrap it up

 

Understand how a loan against insurance policies work and the factors for loan against life insurance. borrow a loan when you are in need of funds, but understand the loan amount that you can get and whether your policy allows the loan. After you have availed  the loan, repay it on time to avoid foreclosure, as a foreclosure (for policies with status “under lapse, paid up” only)     would stop the coverage, and the policy benefits would cease.

 

Frequently Asked Questions

 

1. How do you apply for a loan against an insurance policy?

 

You can inform the insurance company of your desire to take out a loan against your insurance policy. Submit the relevant form for applying for the loan and fulfil the necessary formalities to get the loan sanctioned.

 

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

 

Insurance policies that have a surrender value are eligible for loans. These include endowment and money-back plans.

 

3. What is the loan amount that I can avail myself of?

 

The amount of the loan depends on your surrender value, which is expressed as a percentage of the surrender value your policy has acquired on the date of application. It is one of the important things to be considered for a loan against a life insurance policy.

 

4. What are the reasons for opting to apply for a loan against an insurance policy?

 

Some reasons for which you can apply for a loan against your insurance policy include the following –

  • Medical emergencies
  • Wedding expenses
  • Travel needs
  • Higher education
  • Business needs, etc.

 

5. Are there any tax implications of taking a loan against my insurance policy?

 

There is no tax implication of taking a loan against your insurance policy.

Reference

Term Insurance Guide

Long term investment plans - What Are Their Benefits?

A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

Read More
Long term investment plans - What Are Their Benefits?

A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

Read More
Long term investment plans - What Are Their Benefits?

A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

Read More
Long term investment plans - What Are Their Benefits?

A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

Read More
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.

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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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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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