Loans against Insurance Policies

29/12/2020 0 By indiafreenotes

Loans against insurance policies can only be availed in case one pledges specific traditional policies like money back and endowment policies. Besides having a savings component, these policies also have a life cover component which makes it acceptable to banks. In order to avail a loan on an insurance policy, the policy must acquire a surrender value. The amount sanctioned for the loans is usually 85% to 90% of the policies surrender value.

Insurance policies are now being considered as valuable collaterals for banks after LIC of India confirmed that banks are the biggest lenders of personal loans. LIC apart, several other life insurers such as Edelweiss Tokio Life and ICICI Prudential Life in addition to many other banks including HDFC Bank, ICICI Bank and the State Bank of India grant loans to customers against insurance policies.

Loans against insurance policies are sanctioned only when traditional policies such as money back and endowment policies are pledged. These policies have life cover in addition to savings elements that make them acceptable to banks. Unit-linked insurance plans and term insurance covers are usually not accepted as collateral.

The surrender value must be acquired by the policies if the applicant is to gain eligibility or the loan. The policy must be assigned in favour of the insurer, and usually, the amount of money granted by insurance companies is 85% to 90% of the surrender value. The rate of interest charged by LIC is 10% and it has to be paid on a half-yearly basis.

The repayment tenures are very flexible and LIC also provides customers with a choice of making only interest payments, with a provision for the deduction of the loan amount from the claim amount when it is time to settle the loan. The repayment procedure and interest rates will differ based on the bank or lender from whom you wish to take out the loan. The interest rates, however, are comparatively lower than those charged by banks for secured loans. They are also considerably lower than rates associated with personal loans.

Why are Loans against Insurance policies gaining Prominence

Top up Loans are becoming increasingly popular among a large section of customers who seek personal finance services. The flexibility offered in terms of repayment in addition to the fact that the loan amount can be deducted from the claim amount has been attracting customers, especially those who are in financial turmoil. Even customers with relatively low credit scores find it to be a convenient option as the eligibility criteria for availing this kind of loan are fairly easy to meet. The loan is also sanctioned fairly quickly once the application is submitted, usually within seven days, and in case of the death of the policyholder during the tenure of the loan, the dependents wont be the only beneficiaries of the policy.

The bank or lender can choose to deduct the loan amount as well as interest from the proceeds. Customers are recommended to purchase term cover in order to protect the interests of their families. Based on the age, life insurance company and policy tenure, online term plans are less expensive options. Also, customers are advised to Secured Loans from their insurers instead of approaching banks to hand over their policy as collateral.

Customers who intend to utilise the whole amount they borrow should approach their insurer, but if funds are required on an on-and-off basis and the loan is viewed as a means to up their liquidity, they may consider approaching banks that provide overdraft facilities against policies.

Benefits of taking a Loan Against Insurance

High Loan Value

Take a loan up to Rs. 10 crore, to finance a diverse range of needs. Be it the purchase of new premises for your business, a merger with another organisation or buying a high-value property, this loan can help you attain various personal and professional goals with equal ease.

Dedicated Relationship Manager

Get access to a dedicated Relationship Manager who will offer 24-hour support, all days of the week. Hence, you need not travel long distances to the branch, to seek answers to your doubts.

Easy Repayments

By taking a Loan Against Insurance, make repayments easily. You also benefit from relaxed prepayment and foreclosure terms, so you don’t have to pay any additional charges.

Easy online application

With a loan Against Insurance, you can enjoy a simple online application process. Upon approval, the amount will be credited directly to your bank account.

Easy eligibility criteria

This loan features simple eligibility criteria. If you are a salaried or self-employed resident citizen of India, of 21 years of age or more, you can apply for this loan. However, you need to ensure that the value of your insurance is at least Rs.10 lakh, and that you have regular income.

Hassle-free access to your account

You can monitor and track all your loan-related details easily, and view interest statements, principal statements and account balance, by simply logging in to the customer portal with your allotted user ID and password.

Minimal documentation

You don’t have to take on the hassle of submitting several documents when applying for this loan. You can speed up the application process by submitting only basic documents such as ID proof, address proof, document proof of the insurance policy, and a passport size photograph.

Flexi Loan facility

A flexi-loan facility is best for individuals needing finance unexpectedly, or on a periodic basis. You can use this facility to make multiple withdrawals from your total sanctioned amount, and pay interest only on the amount utilised. You can also choose to pay interest-only EMIs and repay principal at the end of tenor.

Note: Age and Amount differ for each Loan Provider