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Taking a Loan On LIC Policy Online: Procedure and Benefits

In times of financial need, exploring all available options for obtaining a loan is crucial. One lesser-known avenue is leveraging your existing LIC insurance policy to secure a loan. A loan against LIC policy allows policyholders to access funds quickly and conveniently.

We are here to  guide you through the process of taking a loan against an LIC policy online, covering eligibility requirements, the application process, required documents, loan amount and interest rates, as well as the benefits associated with this borrowing option.

Eligibility Requirements for a Loan on LIC Policy

The eligibility requirements for a loan on an LIC policy determine who can qualify to avail of this borrowing option. These requirements may vary slightly depending on the specific policies and terms set by different financial institutions. However, the following are some common criteria typically associated with eligibility for a taking a loan on an LIC policy:

Possession of an LIC policy

To be eligible, you must hold a life insurance policy with a surrender value. The surrender value refers to the amount that the insurance company will pay you if you decide to terminate or surrender the policy before its maturity date. Policies like term insurance or pure risk cover may not be eligible for such loans, as they do not accumulate a surrender value.

Minimum policy tenure

The policy should have been in force for a specific period, usually three years or more. Financial institutions require a minimum policy tenure to ensure the policyholder has made sufficient premium payments and that the policy has acquired a substantial surrender value.

Policyholder as assignee or owner

Generally, the policyholder should be the assignee or owner of the policy to qualify for a loan against it. This means that you, as the policyholder, should be the person who has the authority to assign the policy’s benefits or make decisions related to it. In some cases, if the policy is assigned to someone else, they may be required to give consent or be involved in the loan process.

Lender-Specific Requirements

While the aforementioned eligibility requirements are typical of most lenders, there may be additional criteria set by individual financial institutions. These additional criteria might include factors such as the policy’s minimum surrender value, the policyholder’s age, creditworthiness, and other specific terms determined by the lender

Documents Required:

When applying for a loan on your LIC policy online, you will probably need to provide the following documents:

  • Policy documents: Submit a copy of your life insurance policy.
  • KYC (Know Your Customer) documents: This includes your identity proof (such as Aadhaar card, passport, or driver’s license), address proof (utility bills, rental agreement, or bank statement), and recent passport-sized photographs.
  • Loan application form: Fill out the online form provided by the financial institution.

How to Apply for a Loan Against LIC Policy?

Taking a loan on your LIC policy online is a relatively simple process. Follow these steps to initiate the application:

  1. Visit the official website of your insurance company or a trusted financial institution that offers such loans.
  2. Navigate to the loan on an LIC policy section and explore the terms and conditions, interest rates, and loan features.
  3. Fill out the online application form with accurate details, such as policy number, policyholder information, loan amount required, and preferred loan tenure.
  4. Submit the application along with the required documents, which we will discuss in the next section.
  5. Once submitted, the financial institution will review your application and assess the policy’s surrender value to determine the loan amount you are eligible for.
  6. If approved, the loan amount will be disbursed directly to your bank account or as per the agreed-upon terms.

Lenders Offering Loans Against LIC Policy

  1. LIC Housing Finance is a subsidiary of Life Insurance Corporation of India (LIC). It offers loans against LIC policies at competitive interest rates. The loan amount is up to 90% of the surrender value of the policy and tenure of the loan is up to 15 years.
  2. IDBI Bank offers loans against LIC policies to its customers. The loan amount is up to 85% of the surrender value of the policy. The tenure of the loan is up to 10 years.
  3. SBI Life is a joint venture between Life Insurance Corporation of India (LIC) and State Bank of India (SBI). It offers loans against LIC policies to its customers. The loan amount is up to 80% of the surrender value of the policy. The tenure of the loan is up to 15 years.
  4. HDFC Bank offers loans against LIC policies to its customers. The loan amount is up to 85% of the surrender value of the policy. The tenure of the loan is up to 15 years.
  5. Axis Bank offers loans against LIC policies to its customers. The loan amount is up to 80% of the surrender value of the policy. The tenure of the loan is up to 12 years.
  6. Kotak Mahindra offers loans against LIC policies to its customers. The loan amount is up to 85% of the surrender value of the policy. The tenure of the loan is up to 15 years.

Note that some lenders classify life insurance policy as a security, which is why loan against LIC policy may come under the category “loans against security.” Make sure you have all the information you require before taking a loan against your LIC policy.

Loan Amount and Interest Rates

The loan amount you can avail against your insurance policy depends on various factors, such as the policy’s surrender value and the terms set by the financial institution. Generally, you can borrow a percentage of the policy’s surrender value, typically ranging from 80% to 90%. Interest rates for such loans are often lower compared to traditional personal loans, as the policy acts as collateral. However, it’s important to compare rates among different lenders to ensure you secure the most favorable terms.

Benefits of Taking a Personal Loan Against LIC Policy

Taking a loan on your insurance policy online offers several advantages:

  • Quick access to funds: By opting for this type of loan, you can receive the required funds swiftly, without a lengthy approval process.
  • Lower interest rates: Since the policy serves as collateral, interest rates are generally more affordable compared to other unsecured loans.
  • No impact on policy benefits: Taking a loan on an LIC policy does not affect your existing policy benefits or coverage. Your beneficiaries will still receive the sum assured in case of your demise.
  • Flexible repayment options: Financial institutions often provide flexible repayment tenure options, allowing you to choose a plan that aligns with your financial capabilities.

Conclusion

Taking a loan on your LIC policy online can be a viable solution during financial emergencies or for meeting specific financial goals. By following the steps outlined in this blog, you can explore this borrowing option with ease. Remember to carefully evaluate the terms, interest rates, and repayment options provided by different financial institutions to secure the best deal for your needs. Utilizing your insurance policy to access funds can provide a convenient and cost-effective solution to meet your financial requirements.

Amit Arora Finnable

AMIT ARORA

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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