Loan Against Life Insurance Policy
Close
Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term Plan

Protect Your family’s financial future with Kotak e-Term Plan. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Kotak Health Shield

Insurance against medical expenses related to heart, brain, liver and Cancer. Know more

Loan Against Life Insurance Policy

Loan Against Life Insurance Policy
  • 17th Jun 2022 |
  • 30,606

You will often come across people talking about different types of loans in India, but rarely would you hear about a loan against insurance policy. One primary reason for this is unawareness, and the other is India’s insurance penetration, which is well below the global average.

In this article, we will help you understand all about borrowing against life insurance and loan against ULIP policy, and the benefits you can avail for yourself. It will also take you through details like the policies eligible for loans, interest rates for loan against insurance policy, and so on.

Steps to apply a loan against an insurance policy

A loan against an insurance policy, also known as pledging, is an extremely popular concept abroad. Such loans are issued by the insurance companies themselves or any other financial institutions that provide loans against securities. This type of loan bodes well for loan seekers as you don’t have to provide any other assets as collateral. Therefore, instead of taking personal loans or loans against your credit cards, you can choose to borrow money using your life insurance policy. However, such loans are not available against term insurance policies or equity-oriented securities.

Which Insurance Policies Are Eligible for a Loan?

You cannot avail yourself of a loan against every type of life insurance policy. Hence, it is better to check with your insurance company before buying a plan. But policies like whole life policy, money-back policy, savings plan and endowment plan provide a loan against a life insurance policy. Sometimes a loan against the ULIP policy, also known as Unit-Linked Insurance Plan (ULIP), can be taken depending on your insurer.

Loan against insurance policy - Process & steps involved

The process of taking a loan against an insurance policy is pretty simple. All you have to do is ensure your eligibility criteria and, at the same time, know all the things related to the loan against insurance policy before you move ahead.

Let’s understand the process of taking a loan against insurance before we move on to discuss the important things about it.

Steps to apply for a loan against insurance policy

Determine if your life insurance policy is eligible for a loan

Before you move ahead to apply for a loan against insurance policy, you must check the eligibility of your policy for availing a loan against it. Additionally, other factors like age, valid documents, credit score, etc.

Find the right policy

If you don’t have a valid life insurance policy for taking a loan against it, you might get one. Loan/credit can be a very useful resource in times of emergency. A loan against ULIP policy is one feature that makes ULIP a popular insurance policy in the market.

Finding the right lender

Now that you have an insurance policy that offers you to take a loan against it, you must look for a lender willing to give you a loan against life insurance policy. You should ensure that you do your research and check for the best options available in the market. You must also keep a checklist ready for the loan lender’s benefits.

Applying online or visiting the lender’s office

You can apply for a loan against insurance policy online or visit the lender’s office. However, you should only apply for such loans after thoroughly reviewing the loan documents and repayment criteria.

What Are the Benefits of Loan Against Life Insurance Policy?

Borrowing life insurance offers a lot of benefits, including the following

I. Lower Interest Rates

Interest rates on this type of loan are much lesser when compared to the interest rate levied on a personal loan.

II. Quick Disbursement

As the documentation is minimal, the disbursement of the loan is quicker, with limited application processing required.

III. Fewer Chances of Rejection

Unlike unsecured loans, there’s a slim chance that your loan application will get rejected as you hold an insurance policy with the company.

III. Fewer Chances of Rejection

Unlike unsecured loans, there’s a slim chance that your loan application will get rejected as you hold an insurance policy with the company.

IV. Less Scrutiny

As the insurance company has your life insurance policy as security against the loan, there is less scrutiny. Also, your CIBIL score is not closely examined for sanctioning the loan, which is beneficial if you have a low CIBIL score.

Things to Know Before You Decide for a Loan against Insurance Policy

I. Eligibility

People who hold a life insurance plan and ULIPs (Unit Linked Insurance Plans) can apply for this loan. Unlike the traditional insurance policies, ULIPs offer life insurance covers that provide options to invest in areas like shares, stocks and bonds. Additionally, ULIP policies are considered the best option when it comes to taking a loan against life insurance policy. When you opt for a ULIP policy, other than getting the dual benefit of insurance and investment in one plan, you also get the feature of availing of a loan against it. Therefore, if you plan to apply for a loan of this kind in the future, you must buy life insurance first.

II. Rate of Interest

For a loan against an insurance policy, the interest rate is charged depending on the interest rate applicable when taking the policy. The borrower has to pay interest for six months’ even if the loan has been cleared within this time frame. However, the loan against insurance policy interest rate is generally more affordable than that of other types of loans. Although, it is advised to check with your loan provider for a clearer picture regarding the loan against insurance policy interest rate.

III. Repayment

The repayment period of loan against life insurance policy is usually six months. But the terms and conditions of repaying your loan may vary based on your lender. For instance, some insurance providers do not require the borrower to pay the principal amount. Instead, they directly credit it from the policy value at maturity or claim, provided you are paying the interest amount on time.

Additionally, timely repayment is highly recommended when taking a loan against life insurance policy, even if you only have to pay the interest. This is important because your insurance policy works as collateral here, and failing to pay the loan might lead to bad repercussions.

IV. Surrender Value of Policy

Your life insurance policy acquires a surrender value if you have been paying your premiums on time for three years of buying the policy. The period for acquiring a surrender value may differ according to your insurer. But you cannot avail yourself of a loan if your policy doesn’t have a surrender value

V. Loan Amount

The eligibility for a loan against an insurance policy that you can borrow has to be checked with your insurer. The loan amount is a percentage of the surrender value, with the loan being up to 85-90% against traditional life insurance plans with guaranteed returns.

VI. What Happens If You Fail to Repay?

If you fail to repay the loan taken against the life insurance policy, the interest adds to the balance amount. If the amount borrowed for the loan against insurance policy exceeds the insurance policy’s cash value, then this can cause the policy to lapse. The insurer will then have the right to recover the loan amount and interest from the surrender value of your policy and terminate the insurance policy.

VII. What Is the Drawback of Availing Loan Against Insurance Policy?

The drawback of a loan against a life insurance policy is that in the event of your death, the beneficiary will receive the death benefit but will not be able to recover the entire policy amount. The insurer will deduct the outstanding loan amount and interest before paying the death benefit.

VIII. How to Apply for a Loan against Life Insurance Policy?

Applying for a loan may differ from one insurance company to another. But you can contact your insurer to inquire about the policy’s surrender value, the eligible loan amount, and the terms and conditions related to this feature.

IX. Documents

To avail yourself of this loan, you need to fill out a loan against insurance application form, which needs to be accompanied by the original insurance policy document. You will also need to attach a copy of a cancelled cheque and a payment receipt for the loan amount.

Thus, before you plan to opt for a loan against insurance policy, you are recommended to speak to an insurance advisor to fully understand the terms and conditions before borrowing against life insurance or any other similar plans. This will make you well aware of the short-term and long-term risks, empowering you to make prudent financial decisions.

Kotak e-Term Plan

Download Brochure

Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

T&C

Browse our library of resources

- A Consumer Education Initiative series by Kotak Life

Similar Articles

Is it Possible to Reduce Life Insurance Premium without Affecting Sum Assured?

All about Life Insurance Calculators

What is Human Life value and a Human Life Value Calculator?

In India, should NRIs purchase life insurance?

1 CR Term Insurance Plan: How to Pick the Best 1 CR Term Plan

Is It Advisable To Have Multiple Life Insurance Policies?

Why Life Insurance Is Always a Smart Decision

Various Term Insurance Premium Payment Options Available in India

What is the Difference Between Limited and Regular Pay Insurance Plan?

All about IRDAI

Biggest Life Insurance Myths

What is an Endowment Plan?

4 Benefits of Gifting Life Insurance Cover to Your Spouse

What Is Social Impact Investing and How Does It Benefit Society?

Importance of Checking Claim Settlement Ratio before Buying Life Insurance

How to Buy a Term Life Insurance Online

NRI Premium Payment Options

How Often You Must Review Your Life Insurance Policy?

What is a Single Premium Term Plan and its Tax Benefit?

What Is Financial Planning?

How Much Life Insurance Cover Do I Need?

Why Term Insurance for Women is Important?

What are the Benefits of Endowment Policy?

Compare Different Life Insurance Products Offered By Kotak Life

Life Insurance Vs. Mutual Funds Investment

Benefits of Buying Term Insurance Plan for Senior Citizens in India

Top 5 Common Life Insurance Myths and Facts

Term Insurance Claim Process

What Is The Life Insurance Penetration In India And How Does It Compare Globally?

Can An Individual Buy Multiple Term Insurance Plans?

Types of Life Insurance Policies in India

Why You Should Buy Term Insurance under the MWP Act (Married Women’s Property Act)?

Term Insurance for Home Loan: How Term Plan Helps in Paying Off Home Loan?

Difference Between Money Back and Endowment Policy

What is Minimum Life Insurance Policy?

Key Things to Review in Your Life Insurance Policy Document

Terms and Conditions of Term Insurance Plans

How Do Term Insurance Plans Differ for Smokers?

5 Easy Steps to Buying A Policy

Nominee in insurance - A Complete Guide on nomination in insurance

Life Insurance Beneficiary

Can You Transfer Life Insurance Policies to Another Company in India?

How to Buy a Life Insurance Plan?

Health Insurance VS Life Insurance

Difference Between Insurance and Assurance?

Difference Between ULIP and Endowment Plan?

Who Is A Nominee In A Life Insurance Plan?

5 Things to Keep in Mind While Buying Life Insurance Policy

Term Life Insurance Vs Money Back Life Insurance

Why Buying a Term Insurance is Important for all Parents

What are robo-advisors in insurance?

What Is the Procedure to choose a nomination in life insurance policy?

How Much Life Insurance Do You Need?

When Should You Review Term Life Insurance of Yours?

5 Smart Steps to keep in mind while buying term policies

How to Choose the Right Life Insurance Policy for Your Age?

भारत में जीवन बीमा पॉलिसियों के प्रकार

What is a savings plan?

Difference Between Term Insurance and Endowment Plan

Different Types Of Life Insurance In India

5 Reasons Why You Need Life Insurance in College

What is Life Insurance?

Customer Awareness on Information Security

Is Life Insurance an Investment?

Take 100% Responsibility of Your Family with Term Life Insurance

What Should One Consider Buying: Term Insurance or Traditional Life Insurance

All about Your Rights and Duties While Buying Life Insurance Policy

Beware of Phishing & Fraud Insurance Calls

Choosing Between Short-Term & Long-Term Insurance Plans

First Job? Here’s Some Tips on How to Manage Finances

What is Sum Assured in Endowment Policy?

All About Life Insurance and How It Works?

Life Insurance and Millennials

5 Ways to ensure faster settlement of claims

Life Insurance and Retirement Planning

9 Most Important Things You Must Learn About Paying Life Insurance Premium

Life Insurance vs Mutual Funds

How To Use Different Types Of Life Insurance For Retirement Planning?

Should you buy a Renewable Term Life Policy?

ULIPs: Suitable for all

Does Family History Affects your Term Life Insurance Rates?

Does Life Insurance Pay for Suicidal Death?

FAQs on Life Insurance

Why is Medical Test Important While Buying a Term Insurance?

Role of IRDAI in the Insurance Sector

How to Calculate Human Life Value(HLV)?

Benefits of Term Insurance with Critical Illness Rider

What is Group Insurance?

How to Select a Perfect Life Insurance Policy in India to Protect Your Future?

What is the Current Trend in Term Insurance?

Can You Apply For A Life Insurance After Getting Heart Attack? Here is Everything You Need To Know

What Is a Whole Life Insurance Plan?

Do Life Insurance Premiums Increase Every Year?

Is Return-of-Premium (ROP) in Life Insurance Worth It?

Is Life Insurance For Millennials Really Needed?

Life Insurance for Millennials

How Does Life Insurance Work?

When are Millennials required to take out a life insurance policy?

5 Things to Consider Before You Buy Life Insurance

Term Insurance Vs Car Insurance: A Budgetary Choice You'll Regret

Life Insurance with Money Back vs Without Money Back

Details Required To Be Filled In A Life Insurance Form

How to Revive the Lapsed Life Insurance Policy?

Is Voluntary Life Insurance the Same as Basic Life Insurance?

Important Features of a Term Insurance Plan

Choose the Nominee of a Term Life Insurance Plan Wisely

A Term Insurance Guide for Disabled People

Does Life Insurance Cover Terminal Illness?

Why do I Need Life Insurance?

What Is Investment Insurance?

7 Superficial Reasons People Avoid Buying Insurance Online

Digital Life Certificate for Pensioners Seeking Pension

Best Insurance Plans in India

Everything You Must Know About ULIP Riders

Adding A Child to Your Life Insurance Policy?

Comparing low premium term insurance Is Not the Only Factor While Buying Life Insurance

Types of Life Insurance Or One Investment, Many Options

Staying Insured While Investing

Different Types of Insurance Policies in India

Life Insurance vs Health Insurance

Unit-Linked Life Insurance (ULIPs) vs. Term Insurance

Savings cum Protection Plans Secures Your Family from Unforeseen Events

A Step-by-Step Guide: How To Make An Investment Plan?

What Happens If I Stop Paying My Life Insurance Premium?

Why Renewal of Term Insurance Plan is Important

Why You Should Never Cancel Life Insurance Policy

How to Find the Best Term Insurance Plan in Seven Steps

5 Advantages of Life Insurance Going Digital

How Much Life Insurance Costs and How Much Insurance Cover You Need?

Are Deaths Due To Coronavirus Covered by Kotak E-Term Plan?

Life Insurance for Overweight Applicants

Is it Worth Buying Disability Rider on Term Insurance?

Important Life Insurance Terms You Must Know

Term Insurance Vs Life insurance: Small Details, Big Differences

“Life” Insurance or “Death” Insurance?

Choosing a Life Insurance Beneficiary

How Many Insurances Should I Have?

Can NRI Buy Life Insurance in India?

10 Most Frequently Asked Questions - FAQs on Term Insurance

6 Different Types of Insurance Policies

Voluntary Life Insurance Policy Vs Group Life Insurance

5 Common Life Insurance FAQs and Answers

Why Do Life Insurance Agents Avoid Selling Term Plans?

Choosing the Right Life Insurance

Important Terminologies of Life Insurance

Most Common Life Insurance Riders to Enhance Your Existing Policy

Types of Insurance You Must Invest in for Secure Future

What Is Staggered Payment Option Under Term Insurance Policy?

Why Online Term Insurance Plans Cheap?

Life Insurance for Overweight Applicants

Is it Possible to Make Changes in a Term Plan’s Specification Post Purchase?

Term Life Insurance vs. Accidental Death Insurance

How to Make Death Claims on Life Insurance?

What is Underinsurance & The Dangers of Being Underinsured

Life Insurance Plans for Women

Do Your Financial Planning with Life Insurance!

6 Things You May Not Know about Life Insurance

All About Backdating in Life Insurance

Guide for Buying Online Term Insurance Plans for Senior Citizens

What Is Surrender Value (Cash Surrender Value) in Insurance and how is it calculated?

All You Need to Know About Life Insurance - Its Benefits, Features, and Types of Life Insurance

Important Factors to Consider While Choosing the Right Term Period for Your Term Insurance Plan

Process of Filing A Claim For Life Insurance

Is It Time to Review Life Insurance Policy of Yours?

5 Reasons Why a Women Should Buy a Life Insurance

How to Choose Life Insurance for All Ages?

Guidelines for Linking Aadhar and PAN to Insurance Policies

Sabse Pehle Life Insurance

Insurance Changes You Need to Make Post Marriage

How to Customize Your Life Insurance Policy with Riders

What Is Insurance Coverage?

Why Your Family Should Know About Your Life Insurance Policy?

Why One Must Buy Term Insurance before 25 Years

Insurance Vs Investment - A Guide to Your Financial Goals

Term Insurance Tips for NRIs in India

Think About Life Insurance Sooner than Later

What Is Insurance Rider and It’s Benefits?

Always keep your Nominee informed

How to Choose a Life Insurance Policy

Does Life Insurance Policy Cover Covid Death?

Different Kind of Deaths that are Not Covered in a Term Insurance Plan

Life Insurance Policy Closure

What Should One Expect During the Medical Evaluation for Life Insurance?

Can a Term Plan be the Substitute for a Retirement Plan?

Reasons Why Term Insurance Claims Get Rejected

Why do most Indians choose the wrong way to buy life insurance?

Kotak Life Claim Settlement Ratio