Life Insurance Corporation (LIC) policies safeguard you and your loved ones financially during unforeseeable circumstances. But, did you know that LIC policies can also help you get access to loans when required?
A loan against LIC policy is a type of secured loan that facilitates the option to avail of a loan by pledging the policy to the lender. This provision ensures that you do not need to liquidate your hard-earned assets such as property or automobiles to the lender, so you can retain their ownership. However, before you apply for a loan against your LIC policy, understanding how it works is essential.
To help you make an informed financial decision, this article details the nuances and workings of a loan against LIC policy and how it can help you get the finances you need in times of emergencies.
What is a loan against LIC policies?
LIC policyholders can avail of loans against LIC policy after the policy acquires a surrender value. The loan can be taken against this surrender value of the policy. The surrender value is the amount of money policyholders will receive if they decide to discontinue the policy before maturity.
The key features of loans against LIC policy are:
1 The interest rate on a loan on LIC policy depends on the prevailing rates linked to government bond yields and the applicant's credit profile.
2. Loans against LIC policy are only available to LIC endowment policyholders.
3. The loan amount sanctioned is an advance against the future surrender value of the LIC endowment policy.
4. The maximum loan amount is usually up to 90% of the surrender value for policies in force. For paid-up policies, the maximum is 85% of the surrender value.
5. The LIC insurance policy is held as collateral by LIC against the loan. LIC can withhold or terminate the policy if the applicant defaults on loan repayments.
6. Not all LIC policies have a loan facility. Policyholders must choose plans that specifically offer the loan feature.
7. If an outstanding loan with interest exceeds the surrender value, LIC has the right to terminate the insurance policy.
8. If the policy matures before full loan repayment, LIC can deduct the outstanding loan amount from the policy proceeds before disbursing the balance to the policyholder.
Eligibility criteria for LIC India loan against the policy
Here are the eligibility criteria for availing a loan against LIC policy:
1. The applicant must be a citizen of India.
2. The applicant should be at least 18 years old.
3. The policy must have a guaranteed surrender value.
4. The applicant must have a valid LIC policy.
5. The applicant should have paid at least 3 years' premium in full for the LIC policy to avail the loan facility.
Here are some of the eligible LIC policy plans that can be used as collateral for securing a loan against LIC policy:
1. Jeevan Pragati
2. Jeevan Labh
3. Single-Premium Endowment Plan
4. New Endowment Plan
5. New Jeevan Anand
6. Jeevan Rakshak
7. Limited Premium Endowment Plan
8. Jeevan Lakshya
The application process for availing of a loan against LIC policies
The process is subject to changes by LIC. Here are the key steps to avail a loan against an LIC policy:
1. Offline method
To avail of a loan against LIC policy, offline, follow these steps:
Step 1: Visit the nearest LIC branch office and obtain the loan application form.
Step 2: Fill in the application with your policy details and required information. Attach KYC documents like identity proof and address proof.
Step 3: Submit the duly filled application at the branch along with the original policy bond.
Step 4: The LIC office will verify your policy details, premium payment status and surrender value to determine your loan eligibility.
If approved, LIC will sanction the loan and disburse the amount as per the product terms. The original policy will be retained by LIC until full loan repayment.
2. Online method
To avail of a loan on LIC policy online, follow these steps:
Step 1: Register for LIC's e-services and login to your account.
Step 2: Check your policy eligibility for a loan and view applicable terms and conditions online.
Step 3: Fill out the application form online and submit it along with scanned copies of KYC documents.
Step 4: You may need to send original physical documents to the nearest LIC branch for verification.
Once verified and approved, the amount is disbursed into your account. Policy documents may be required to be deposited in physical form at the branch.
Terms and conditions to avail of a loan against LIC policies
The terms and conditions are subject to change by LIC. Below are some terms and conditions applicable for loans against LIC policies:
1. The minimum tenure of the loan is 6 months. Shorter tenures are not permitted.
2. Prepayment of the loan is allowed only after paying at least 6 EMIs.
3. In case of the unfortunate demise of the policyholder before loan maturity, interest will be charged only until the date of the demise.
4. If the policy matures during the loan tenure, the maturity claim proceeds can be utilised by LIC to first recover the outstanding loan with interest.
5. Only LIC policyholders with eligible endowment, moneyback and whole-life plans can avail of loans after acquiring the stipulated surrender value.
6. The policyholder needs to pay interest regularly as per the schedule to avoid loan foreclosure.
7. LIC reserves the right to terminate the policy if the loan with interest exceeds the surrender value.
Discover Tata Capital’s loans against securities
Loans against LIC policies allow policyholders to meet liquidity needs seamlessly. However, one must repay interest and principal on time to avoid policy termination or loan ballooning beyond surrender value.
At the same time, it is essential to look for the right lender to avail of a loan against securities. At Tata Capital, we offer competitive loans against securities interest rates, along with a high loan amount and minimal documents required for a loan against securities. To get an estimate of your potential EMIs, head over to our loan against securities EMI calculator. Apply for a loan against securities with Tata Capital today!
Visit the Tata Capital website or download the Tata Capital App for more information!
11 March 2024
6 mins read
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