Loan Against LIC Policy

loan-against-LIC

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LIC policies are meant to provide insurance to subscribers against adverse events in one’s life such as death or illness. You need to pay annual premiums on your life insurance policy for the policy term. If it as an endowment policy, your beneficiaries get the policy amount in the case of an event covered under the policy that occur or you receive maturity benefits at the end of the policy term.

A lesser-known fact about LIC policies is that you can avail of personal loans against them to meet your urgent expenses. You are eligible to get a loan of up to 90% of the surrender value of your LIC policy as calculated at the time of availing a loan. Key benefits of taking policy loans are:

credit score
  • You get quick, instant personal loans against the security of your life insurance policy.
  • You can avail of the loan from LIC itself or you can also borrow from other banks.
  • You do not need to cancel or surrender your existing policy thus allowing you to keep your savings intact and at the same time meet your personal expenses.
  • You can get a loan amount equal to 90% of the surrender value of your policy.
  • You do not need any additional documents or CIBIL score to get this loan.
  • You can get this loan at very low-interest rates.

LIC Policy Loan Interest Rate

The current LIC policy loan interest rate is in the range of 10-12%. Given that the loan taken against the policy is secured by the LIC policy itself, interest rates on such loans are quite low and hence, make them an attractive personal loan option. Loans on LIC policy can be availed from LIC or other leading banks such as SBI, Axis Bank, Bank of India and others. The rate of interest on policy loans can vary from bank to bank.

Everything You Know About Loan Against Securities

LIC Loan Details

LIC Policy LoanDetails
Interest Rate10-12%
Loan Amount as a percent of Surrender ValueUp to 90%
Minimum Tenure6 months
EligibilityEndowment Policyholders who have paid premium for a minimum of three years
SecurityLIC policy
Pre-payment ChargesNil
Foreclosure ChargesNil
Repayment OptionsBullet Repayment with an option to pay monthly
interest

Loan on LIC Policy

Purpose: This loan can be availed to meet your urgent personal expenses. These may be for unforeseen medical situations, educational, marriage expenses, or simply for getting out of the financial crisis.

Key Features

  • Loan Amount: Up to 90% of the surrender value.
  • Loan Tenure: A minimum of 6 months has to be served as tenure.
  • Interest rates: LIC policy loan interest rates are in the range of 10% – 12%.
  • Termination: LIC can terminate the policy in case the total amount of debt reaches more than the Surrender Value. LIC also holds the leverage of deducting the loan amount from the maturity amount if the policy matures before the completion of loan repayment.
  • The demise of the policyholder: If it so happens that the policyholder dies during the tenure of the loan, LIC will deduct the interest and outstanding loan amount from the amount of claim settlement.
  • Documents Required: Address Proof, Identity Proof, Income Documents.

LIC Policy Loan Calculator

LIC Policy Eligibility Calculator uses the following parameters to ascertain if you are eligible to get a loan and the amount of loan you are eligible for:

Type of Policy

Life Insurance Corporation of India typically allows personal loan against LIC endowment policies as per conditions specified in the policy bond. Some of the popular LIC policies on which loan can be taken are:

  • Jeevan Pragati
  • Jeevan Labh
  • Single-Premium Endowment Plan
  • New Endowment Plan
  • New Jeevan Anand
  • Jeevan Rakshak
  • Limited Premium Endowment Plan
  • Jeevan Lakshya

Tenure of Policy

You are eligible for a loan against policy only when you have paid 3 years of premium as the policy acquires a surrender value only after 3 years of paid premiums. Your loan tenure is restricted to the remaining tenure of the maturity of your loan policy.

Surrender Value

The amount payable by Life Insurance Corporation in the event that the policyholder decides to discontinue the policy is known as the Surrender or Cash Value of the policy. This value is very low in the initial years and hence, taking a loan against LIC policy is not considered a bright idea until the policy is old enough. The surrender value of policy increases with the holding period of the policy. Hence, the higher the holding period of the policy, the higher is the loan amount you are eligible for.

LIC Loan Repayment

LIC Policy Loans have a minimum tenure of 6 months and a maximum up to the maturity of the insurance plan. You have to pay at least six months interest, even if you wish to settle the loan within six months. You can follow any of the LIC loan repayment procedures:

  • pay the interest along with the principal
  • pay only the interest and principal amount can be settled with the claim amount on the maturity
  • pay interest for a few years and repay the principal when you have excess cash

Unlike other loans, LIC loan is not paid in EMIs, thus giving a lot of flexibility in repayment.

Loan on LIC Policy FAQs

How much loan amount can I avail against my LIC policy?

LIC Personal Loan can be as high as 90% of the surrender value of your policy, as long as you have paid 3 complete years’ premium in full.

What is the minimum tenure on LIC Personal Loan?

Even if the principal is settled in a couple of months, the minimum time allowed for LIC loan repayment is six months.

What happens if I default my interest payment?

If the interest is not paid for 30 days after the due date, LIC can foreclose the policy and settle the loan amount against the proceeds.

How can I apply for a loan against LIC policy?

You will need to visit the bank branch and submit Form 5196 to your policy agent who will follow up to get a loan for you.

Is there a provision of LIC Online Loan?

Yes, you can visit the official website of LIC and avail a loan against LIC policy after subscribing to the LIC Premier Services, once you have registered yourself.

What will happen if the policy holder dies while he has taken a LIC loan against policy?

If the policy holder dies during the tenure of the loan, LIC will deduct the interest and outstanding loan amount from the amount of claim settlement and pay the remaining settlement amount to the beneficiaries of the policy.

What will happen if one defaults while he has taken a LIC loan against policy?

LIC can terminate the policy in case the total amount of debt including the outstanding loan and interest payment due reaches more than the Surrender Value. LIC also holds the right to deduct the loan amount from the maturity amount if the policy matures before the completion of loan repayment.

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