Tata Capital > Blog > Insurance Blogs & Financial Protection Guides > Loan against life insurance policy – Unlock funds without surrendering your cover
28 October 2026
10 mins read
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A life insurance policy is one of the most useful financial tools. It helps ensure your loved ones’ financial well-being, even in your absence. In case of the policyholder’s unfortunate demise during the policy term, the insurer provides a lump sum amount to the nominee. This support helps dependents manage daily expenses and maintain their standard of living without facing any financial strain.
However, there is another benefit that many people are not aware of. A life insurance policy can also be used to access quick funds during a financial emergency. You can avail of a loan against a life insurance policy without surrendering your cover. It offers benefits such as quick liquidity, continued protection, and competitive interest rates.
In this blog, we will explain in detail what a loan against insurance is, how it works, along with its features, benefits, eligibility criteria, and more. Keep reading.
A loan against a life insurance policy is a secured loan where you pledge your eligible life insurance policy as collateral to borrow funds. The lender offers a loan amount based on the policy’s surrender value. You won’t have to sell or cancel your policy.
Your policy continues as usual, and you still enjoy life cover and other benefits during the loan tenure. This is different from surrendering the policy, which typically ends the cover.
You can use the borrowed amount for various needs, such as medical emergencies, education, business expenses, or personal requirements.
In a loan against a life insurance policy, your policy is assigned to the lender as security or collateral. The maximum loan amount is based on the policy’s surrender value. Most lending institutions allow you to borrow up to 90% of this value.
You continue to pay interest during the loan tenure, and your policy remains active. Repayment is usually made through EMIs (Equated Monthly Installments). They typically include both interest and principal components.
If you fail to repay the loan amount, the lender may seize your policy to recover its dues. After deducting the outstanding balance amount from the surrender value, the remaining amount is paid to the nominee.
A loan against a life insurance policy can be a highly useful option during emergencies or for meeting short-term needs. It offers a practical way to access funds without disturbing your long-term financial security. Since it is a secured loan, it usually comes with lower interest rates, quick processing, and minimal documentation. You can also benefit from flexible repayment options while continuing to enjoy the life cover.
One of the biggest advantages of a loan on a life insurance policy is quick access to funds. You can apply for it online and get the funds in your bank account within a few minutes. You do not have to run from pillar to post or surrender your policy. It not only helps in saving your precious time but also provides adequate liquidity during a financial crisis.
Most lenders offer flexible repayment options for these loans. For example, you can choose to pay only the interest during the loan tenure. The principal amount can be paid in a single bullet payment at loan closure. Some lenders also allow you to make prepayments without any additional charges. This gives you control over your cash flow and allows you to plan your repayment based on your income.
Your life insurance policy stays active even after taking the loan. You and your family continue to enjoy the benefits of the policy. There is no change in coverage if EMI payments are made on time. However, if you default on your loan, the lender may deduct the outstanding balance from your policy’s surrender value or claim amount.
Also,read – Loan Against LIC Policy: Interest Rate, Eligibility and How to Apply
Not all life insurance policies are eligible for securing a loan. The policy must have a surrender value. The lender sanctions the loan amount based on this value. Also, the policy should be active and have no outstanding loans against it.
In general, the following types of policies are eligible for a loan against insurance:
The loan amount, interest rate, and repayment terms for a loan against a life insurance policy depend on several factors. These include the policy’s surrender value, the borrower’s credit profile, and the lender’s internal policies. Terms may vary across lenders. It is important to read the loan agreement carefully to understand charges, conditions, and repayment rules before applying.
Lenders typically decide on the maximum loan amount you can borrow based on your policy’s surrender value. In most cases, you can borrow up to 80% to 90% of this value. The exact percentage may vary depending on the insurer and lender. Policies with a high surrender value qualify for a higher loan amount. It is always useful to check the eligibility limit before applying.
The loan against a life insurance policy interest rate depends on the lender’s policy and your credit profile. Borrowers with strong credit scores may get better rates. The rates can be fixed or floating. Fixed rates remain the same throughout the loan tenure, while floating rates may change based on market benchmarks. It is important to compare offers from multiple lenders before zeroing in on one.
Repayment terms for these loans are usually flexible. You can choose a convenient tenure between six and twelve months. Some lenders also allow you to extend the loan tenure until the policy term. You can even choose to repay the loan amount via regular EMIs or a lump sum at the end of the tenure. Delayed or missed EMI payments may attract penalties and can also hurt your credit score.
Eligibility for a loan on a life insurance policy depends on several factors. These include the applicant’s age, active policy status, income level, credit score, and the policy’s minimum surrender value. The policy must be in force and have built sufficient value over time.
Lenders may also assess your repayment capacity to determine your eligibility. It is important to note that the eligibility criteria may vary from one lender to another.
Anyone can apply for a loan against a life insurance policy, provided they meet the lender’s basic eligibility criteria. Here are the usual guidelines that most lenders in India follow:
Lenders typically require the following documents to process a loan against a life insurance policy:
Note that this list is indicative. The lender may ask for some additional documents during loan processing.
Apart from the interest charges, the lender may levy the following fees/charges on a loan against a life insurance policy:
Since charges can vary by lender, it is advisable to check the latest fee schedule and read the loan agreement carefully before proceeding.
Also,read – Types Of Credit Insurance In India
Most lending institutions in India allow you to apply for a loan on a life insurance policy online. Here’s the step-by-step guide to do so:
1. Check your eligibility
Check if you are eligible to apply for a loan on a life insurance policy with a lender.
2. Fill out the application form
If eligible, proceed to fill out an online loan application form on the lender’s website. Ensure you input all details correctly.
3. Submit the required documents
Submit the required documents along with the policy assignment letter. You can upload them directly to the lender’s website.
4. Wait for the lender’s approval
Wait until the lender verifies your documents and provides approval for the loan.
5. Get money in your bank account
Upon successful approval, the loan amount will be disbursed directly to your bank account.
Before you apply for a loan on a life insurance policy, here are a few things you should keep in mind:
If you fail to repay your loan within the normal tenure, the lender may offer you a grace period to make the payment. You can repay the outstanding amount, along with the late payment charges, within this period. However, if you are still unable to repay the loan after the grace period, the lender reserves the right to deduct the dues from your policy’s surrender value.
In case of the borrower’s death before repayment, the lender deducts the outstanding balance (along with interest) from the death claim. The remaining amount, if any, is paid to the nominee.
Hence, it is important to repay the loan on time. Proper planning can help you use this option wisely without affecting your long-term financial security.
A loan against a life insurance policy is a secured loan where you use your policy as collateral. The lender gives funds based on the policy’s surrender value. Your policy stays active, and you continue to receive its benefits while repaying the loan.
The loan amount is calculated as a percentage of the policy’s surrender value. Most lenders offer around 80% to 90% of this value. The exact amount depends on the insurer, policy terms, and lender policies. A higher surrender value usually means a higher eligible loan amount.
Not all life insurance policies are eligible for a loan. Lenders usually accept policies that have a surrender value. These include endowment plans, money-back plans, whole life policies, and some ULIPs. Term insurance plans are generally not eligible since they don't have a surrender value.
The loan against a life insurance policy interest rates start from 8% per annum. The exact rate depends on factors like surrender value, borrower’s credit profile, and loan terms. Since it is a secured loan, rates are generally lower than personal loans.
Yes, you can continue your life cover after taking a loan against your policy. The policy remains active, and all benefits stay intact. However, if you fail to repay the loan amount or interest, the lender may deduct the dues from the final claim or maturity value.
If you fail to repay the loan on time, the lender can recover the dues from your policy’s surrender value. It includes both outstanding principal and interest. If dues become too high, the policy may lapse, and your life cover could be lost.
Yes, there can be processing fees and prepayment charges on a loan against a life insurance policy, but they vary by lender. The processing fee is usually charged at the time of disbursal and may go up to 3% of the loan amount. A prepayment or foreclosure charge is levied if the borrower pays off the loan before the scheduled date.
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