Loan against LIC policy is a widely utilized financing program in India by the policyholders for instant funds without having to sell the policy. They offer a convenient solution to meet unforeseen cash requirements by taking the help of the surrender value of a Life Insurance Corporation (LIC) policy. This is a step-by-step guide on how to take loan against LIC policy with details of LIC policy loan interest rate so that you can make an informed decision.
Understanding Loan Against LIC Policy
Loan against LIC policy is a secured one and the policyholder takes money by hypothecation of his life insurance policy. Amount of loan will be a percentage of surrender value of policy depending on nature of policy and premiums paid. Facility is available against majority of LIC policies like endowment policies, money back policies and whole life policies but not term insurance policies.
The borrower continues making premiums on the policy, and the loan is repaid with interest in a previously agreed period. The best advantage is that you don’t need to surrender your policy in exchange for receiving cash. This is why loan against LIC policy is an inexpensive and hassle-free facility to borrow in case you need money.
Advantages of Availing Loan Against LIC Policy
- Quick disbursal: Since the loan is against your policy, approval and disbursal are instantaneous.
- Minimum rate of interest: LIC policy loan rate of interest is lesser than personal or unsecured loans.
- No impact on credit score: The loan is against your policy surrender value, not much credit history based.
- Retain policy benefits: Your policy stays with bonuses and maturity benefits.
Understanding the LIC policy loan rate of interest and process aids you in planning the repayment accordingly.
Step 1: Eligibility Check and Loan Amount
The first step to avail a loan against LIC policy is to make sure your policy is eligible and select the loan amount you want to obtain.
- The policy must be active with premiums paid for at least 3 years.
- Facility of loan is granted on policies with a surrender value.
- Loan value can be from 70% to 90% of the surrender value depending upon the type of policy.
- You must be the policyholder.
LIC normally gives details about the eligible loan amount and interest as desired. Knowledge of the eligible loan amount will enable you to manage your finances in an appropriate way.
Step 2: Documents Required
For taking the loan against LIC policy, you need to prepare the following documents:
- Old LIC policy bond
- Loan application form (which is available in LIC offices or online)
- Recent receipt of premium payment
- Proof of photo ID (Aadhaar card, PAN card, passport)
- Proof of address
- Passport size photos
Maintain the documents valid and up-to-date to avoid any delay. Keeping all the documents ready makes it faster to sanction the loan.
Step 3: Complete the Loan Application Form
You are required to get the loan application form either from your nearby LIC office or directly download it from the official website of LIC. Enter the following information:
- Policy number
- Amount needed as loan
- Personal and contact information
- Declaration and signature
Take care not to create any discrepancies. Verify the form twice for accuracy before submitting.
Step 4: Submit Application Form Along With Documents
You post the completed application and documents to your LIC branch office or policy servicing centre once you have them. There is online application facility provided by LIC for a few policies too.
When you submit, LIC officials verify your details, sign the policy status, and approve the surrender value to calculate the amount of loan. On approval, you are dispatched a sanction letter with sanctioned amount of loan and LIC policy loan rate of interest.
Step 5: Verify Loan Sanction Letter and Terms
After approval of loan, LIC dispatches a sanction letter that contains:
- Loan amount sanctioned
- Interest rate that will be charged (typically 9.5% to 12% per year)
- Repayment term and options
- Documentation or processing charges, if any
- Terms and conditions
Carefully read the letter. LIC policy loan interest rate is typically fixed and lower than individual loans. However, repayment must be done on time to avoid policy defaults.
Step 6: Accept Offer of the Loan and Sign Agreement
Once you agree to the terms, you are requested to sign an agreement with LIC. It is a legal agreement that mentions your responsibilities and rights. After it is signed, LIC disburses the payment in cheque or bank draft as per your choice.
Keep photocopies of the signed agreement with you.
Step 7: Get the Loan Amount
Once disbursed, you can utilize the loan amount. You can use it to meet any financial need like medical, higher studies, or business purposes.
You will be required to monitor your repayments so that the policy does not lapse and the loan gets serviced.
Step 8: Service Interest on the Loan
Repayment is convenient but needs to be made according to LIC’s terms so that no impact falls on your policy:
- The interest can be paid annually or monthly as per the LIC policy loan interest rate.
- EMI or lump sum can be paid at any point of time during the policy term.
- Outstanding interest may be carried forward along with the loan amount.
- Outstanding interest and the loan are repaid at the time of policy maturity or surrender.
Regular and timely payment keeps your policy benefits away from deduction.
Determinants of LIC Policy Loan Interest Rate
LIC also determines the interest rate on the loan, based on:
- Policy term and nature
- Market and RBI conditions
- Policy surrender amount
- Loan term taken
The interest rate on the LIC policy loan is generally between 9.5% and 12% per annum. That is comparatively lower than other unsecured loans or credit card rates.
Important Points to Consider Before Applying
- Loan against the policy reduces the maturity proceeds by an amount equal to the loan.
- Disbursal depends upon policy category and payment of premiums.
- Non-payment of loan can lead to policy lapse.
- Loan cannot be availed on term insurance policies since they have no surrender value.
- Processing fees might be charged in some cases; approach LIC first.
Precautions for Borrowing Loan Against LIC Policy Effectively
- Take loans only when necessary; continue paying policy premiums without break.
- Repay the loan amount on time to prevent accumulation of additional interest.
- Keep your policy loan account statements safe.
- Approach your LIC branch or agent in case of any clarification.
Conclusion
Withdrawing a loan against LIC policy is an easy procedure of money convenience out of your own funds in the policy. With the above step-by-step guide, Indian policyholders can easily utilize this facility along with knowing the LIC policy loan interest and payment pattern. Keep your policy active and settle loans in time to get maximum policy benefits along with convenient money access.
