Loans on Insurance Policies

The insurance policy you have can bring you money for less interest rates. Yes, you can pledge the insurance policy to get the loan with low interest rates and can repay with the flexible duration. When Bangalore based engineer Murthy  is have no clue when his application for the personal loan is rejected. His insurance policy brings relief to him to get the loan. It may not bring the huge amount, but it is worth instead of taking the personal loans for high interest rates. There are various factors which would decide the loan amount against the policy, we would look into those details in this post. If you have any doubts, please post it in the comments section. Subscribe to our future articles here.

Eligibility to Apply for loan

It is not possible for every policy holder or every policy can apply for the loans. The following are the few points to remember while applying for the loans:

• You can not apply for loans against the Money Back policies. All other policies are eligible. Moreover it is depend on the company.
• You should have paid the minimum of three premiums to the policy, otherwise you can not apply for the loan.
• Some banks not interested in paying loans for the Unit Linked Insurance Plans(ULIP) policies.
• You can not take the loans against your term insurance and health insurance policies.

Loan Limit

The loan limit is calculated for the traditional policies and ulips are different.

• Traditional Policies:
• You can get the guaranteed amount of 80-90% of the surrender value (How to find surrender value of policy?). Please note that, policy gets surrender value only after paying the three years premiums. Basically the minimum surrender value is 30% of the total premiums paid minus first years premium. If you have paid Rs.25000 as the yearly premium for four years, then its surrender value would be Rs.22500 (25000×4 = 100000 minus – 25000). It is the minimum amount you can get, but the maximum amount is depends on the company and other factors.
• Unit-linked plans (ULIPs):
• Many companies not interested in giving the loans against the ulips. The loan amount would be based on the current market value of the policy. If your ulips invested 60% amount in the equity, you could get up to 40% as the loan amount. If your ulip has invested 60% in the debt funds, then maximum eligibility to get the loan is 50%.

Repayment of Loans

The repayment schedule would vary from the each insurance companies. It is more flexible compare to the normal loans. But, minimum of six months are required for repaying the loans. The following general points to consider:

• If you repay the loans before six months, you have to pay the interest for full six months.
• In some companies, if you have paid the loan on time, the policy will lapse.
• In the same way, if a person taken a loan and not paying the premium for the policy, then policy will lapse.
• Incase the policy holder is died or policy is matured, the interest will be charged only up to the date of death or maturity.

Negative impact on taking loans

If you have taken a loan against the insurance policy and paying on time, then it won’t be any problem for the policy. But, if you are not able to pay the installments, then policy would loose the benefits. In that case, if the insured dies, beneficiaries would get the sum assured after deducting the pending amount as well as the interest due.

Summary

I hope this article would be very useful for who are looking for the alternative loans. Earlier I have written about the same topic. This would be the refreshing post in the same topic. If you have any doubts, please post it in the comments section.

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