Loan against Insurance Policy: A good option to meet the Need of Money

A loan against an insurance policy is much easier to get and the interest on it is also less. You can take this loan through banks or non-banking financial institutions (NBFCs).

Everyone has to face a difficult financial situation at some point or the other. Crores of families are facing a financial crisis during the Corona period. At such a time, the most lack of money is felt. In such difficult times, your insurance policy can be very useful for you as a loan can be taken against it. The good thing is that the loan against the insurance policy is much easier to get and the interest on it is also less. You can take this loan through banks or non-banking financial institutions (NBFCs).

How many loans do I get?

• How much the loan will be available depends on the type of policy and its surrender value.
• Usually, 80 to 90% of the surrender value of the policy (the amount received at the end) can be availed.
• However, this loan is available only if you have a money-back or an endowment policy.

Surrender value

Surrendering a life insurance policy before it is operative for the full term gives back a part of the premium paid. In this, the charges are deducted. This amount is called the surrender value.

Special things related to surrender value

• The surrender value is refunded only in those policies in which there is a part of investment along with insurance.
• There will be no surrender value in a pure term plan.
• Plans like Endowment, Moneyback, and ULIP have a surrender value.
• The surrender value will be refunded only if the premium has been paid continuously for two years. In many companies, this limit is 3 years.

Interest

• The interest rate on an insurance policy depends on the amount of premium and the number of premiums paid.
• The interest rate of loans against life insurance varies between 10-12%.

If the loan is not returned

• Default in repayment of loan or default in payment of premium will result in a lapse of the insurance policy.
• The policyholder will have to pay a premium on the loan taken against the policy in addition to interest.
• The insurance company reserves the right to recover the principal and outstanding interest amount from the surrender value of the policy.

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