LOAN AGAINST INSURANCE POLICIES

Generally, insurance policies are used as securities but they can also be put to versatile uses by availing loan against them. The tenure of the loan is 6 months to 1 year. A loan can be up to 85-90% of the traditional plans and guaranteed returns. The rate of interests is between 10-14%, based on the type of insurance, which is very low as compared to personal loan.

Eligibility for loan against insurance policy

When borrowing a loan against an insurance policy, you are essentially borrowing from yourself. You can thus borrow the money for any kind of expense without having to provide an explanation, and you do not have to undergo intense scrutiny or a stringent approval process. Though the income of the borrower is also not a deciding factor for deciding their eligibility, their credit-worthiness is considered nevertheless.

Only one thing need to be taken into consideration that every insurance policy do not provide loan against them. For example you can take loan against life insurance policy but cannot avail loan against term insurance.

Documents required for loan against insurance policy or life insurance policy

• Original insurance Policy Document
• Filled Loan Application Form (Form No 5196, Form No 5205, Form No 5200, Form 3516, Form No 5198 and Form 3599)
• Endorsement Form (Form No. 3599C) for Loan on Minor LIC Policy
• ID proof
• Age Proof (if not submitted earlier)
• Assignment / Reassignment (if any)
• Cancelled Cheque or Copy of Policyholder’s Bank Passbook
• NEFT Mandate Form (so that the maturity proceeds can directly be transferred into the policyholder’s account)

Important points kept in mind while taking loan

• Interest calculated twice in a year. That means for every six months.
• The loan may be repaid at any time during the policy term. There is no Fixed EMIs for Repayment. You can pay as much principal as you can.
• Interest calculation will be done on outstanding to be paid principal. So if you pay Principal frequently your Interest amount will reduced.
• If you are unable to pay the principal, pay only interest, principal amount will be adjusted at the time of maturity of your policy.
• Online payment facility not applicable for loans repayment, you should pay the amount at the loan receiving branch only.
• After completion of your repayment, you receive your original policy document submitted at the time loan application.

Interest rates charged by banks on loan against insurance policy.