How to Get a Loan Against LIC Policy: Rates, Eligibility, and Process Explained

Have you ever wondered how to manage your financial well-being when the need arises? One solution is a Life Insurance Corporation (LIC) policy, which can be used as collateral to secure a loan. Without disrupting your long-term financial plans, this policy helps you overcome the tough financial situation and offers a convenient and cost-effective way to access funds. Let’s understand further the loans against LIC policy, including interest rates, eligibility criteria, and the step-by-step application process. 

What is a Loan Against LIC Policy?

A loan against an LIC (Life Insurance Corporation) policy is a type of secured loan where you use your LIC policy as collateral to borrow money. This option is beneficial for policyholders who need quick access to funds without having to liquidate their investments, specifically in times of crisis. When you take a loan against an LIC policy, the policy is temporarily assigned to the lender until the loan is fully repaid. If the borrower fails to repay the loan, the lender receives all the benefits. 

Who Can Avail Loan Against LIC Policy?

The eligibility requirements to qualify for a loan against your LIC life insurance policy are as follows:

• The individual must be the owner of an LIC life insurance policy.
• The individual must be a citizen of India.
• The policyholder should be of a minimum age specified by LIC to be eligible for availing a loan.
• The policy must be a life insurance policy, not a term insurance policy or a unit-linked insurance plan (ULIP).

Documents Required to Avail Loan Against LIC Policy

To avail loan against insurance Policy, remember to keep the below-mentioned documents available-

• Original policy document
• Identity proof
• Residence proof
• Income proof
• Assignment deed

Benefits of Taking a Loan Against LIC Policy

• Loans against LIC policies typically come with lower interest rates compared to personal loans or credit cards.
• Since the loan is secured against the policy, there’s usually no requirement for a credit check.
• Loans against LIC policies are processed quickly, often within a few days, making them ideal for urgent financial needs.
• Flexibility in repaying the loan, including making partial payments or repaying it in full without incurring penalties.
• Interest paid on the loan against an LIC policy may qualify for tax deductions under certain conditions, providing additional savings.
• While the policy is assigned as collateral, you still retain its benefits and can continue to earn bonuses and other policy advantages.

How to Get Loan Against LIC Policy?

To apply for a loan against LIC policy, you can either opt for an online method or offline. The procedure for both are mentioned below:

To apply loan against LIC policy online, follow the given steps:

Step 1: Visit the LIC portal by clicking on https://licindia.in/ and register yourself

Step 2: Login and go to the “Online Services” tab.

Step 3: Click on the “Online Loan” option.

Step 4: Navigate to the “Online Policy Options” and place a request under the “Online Loan Request” tab.

Step 5: Upload your KYC documents for verification.

To apply offline, follow these steps:

Step 1: Go to the nearest LIC office or a bank branch with your policy document and KYC documents (identity and address proof).

Step 2: Fill out the required application form and review loan details like interest rate and loan tenure, and if it suits your requirement.

Step 3: Once approved, you’ll receive the loan either as a lump sum or as an overdraft.

Interest Rate for Loan Against LIC Policy

Generally, the interest rate for a loan against an LIC policy ranges from 9% to 11%. Usually, this rate is lower than other types of personal loans due to the lower risk for the lender as this loan is secured against the policy’s surrender value. It’s beneficial to cross-check with LIC or your lender for the most current and specific interest rate applicable to your loan.

How to Calculate Loan Against LIC Policy?

Steps to Calculate Loan Amount Against LIC Policy:

Know the Surrender Value: The surrender value is the amount you would receive if you decide to cancel (or “surrender”) your policy before maturity. The surrender value is calculated based on:

Total Premiums Paid: The sum of premiums you’ve paid so far.

Surrender Value Factor: This factor increases with the number of years the policy has been in force.

The surrender value can be found by contacting LIC or checking your policy statement.

Apply the Loan Percentage:

If your policy is active, LIC offers a loan of 90% of the surrender value.

If your policy is paid-up (where you stop paying premiums but keep the policy), the loan amount is 85% of the surrender value.

Consider the following example to calculate loans against LIC policies:

Let’s say the surrender value of your LIC policy is ₹1,00,000.

For an active policy, you can get a loan of 90%:
₹1,00,000 × 90% = ₹90,000.

For a paid-up policy, you can get a loan of 85%:
₹1,00,000 × 85% = ₹85,000.

Interest on the Loan: LIC will charge interest on the loan amount, which will accumulate until the loan is fully repaid. The interest rate is set by LIC and can vary.

You can always contact LIC or use their online portal to check your policy’s surrender value and the loan amount you’re eligible for.

Things to Keep in Mind Before Taking a Loan Against LIC Policy

• Know the repayment terms beforehand, including the tenure and any prepayment charges.
• The minimum loan amount depends on the lender’s terms. You can borrow up to Rs. 2 lakh or 80% of your policy’s surrender value. Most lenders allow loans starting from Rs. 50,000.
• Ensure your policy qualifies for a loan. Remember that term policies and ULIPs are not eligible.
• Be prepared with a thorough understanding of the application process and required documentation.

Therefore, by understanding the terms, eligibility criteria, and other factors of loan against LIC policy, we can conveniently manage any unexpected financial issue or expenses. With lower interest rates and minimal paperwork as compared to traditional loans, using your LIC policy as collateral to borrow money helps to access funds while at the same time keeping your insurance intact, thus providing an innovative alternative in times of financial crisis.