All About Loan Against Life Insurance
Updated On Dec 22, 2022
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A life insurance policy in today’s time is an extremely important product that ensures to offer protection for your loved ones even in your absence. In today’s highly uncertain times, the popularity of life insurance plans has become such that a number of life insurance companies now provide a plethora of life insurance plans. Offering a bunch of benefits, life insurance plans are also a good option for getting loans. So, along with getting financial protection, you can also use your life insurance policy for taking loans and fulfilling any immediate needs. In case you use a life insurance policy as loan collateral, you can get loans at a lower rate as well as enjoy other benefits. Read on to know all about loans against life insurance.
Life Insurance Plans As Loan Collaterals
There are times when you might need a certain amount of money that you simply cannot afford at the very instant. Whether you are planning to buy a new house or wish to pursue higher education, then chances are you might need financial aid, and in such a case getting loans is simply the best resort. While most people in such situations go to banks for getting loans, however, you must be aware that there are other ways as well to get loans. One popular way is to use your life insurance policy as loan collateral. So, if you land up in any financial emergency or need a loan for any other reason, you know how a life insurance policy proves to be beneficial.
In the section below, listed below are the factors you need to keep in mind while using life insurance plans as loan collaterals:
- Loan Amount: First and foremost, you need to identify the loan amount you need against your life insurance plan. You also need to speak to your life insurance provider to clarify whether you are eligible for getting that particular amount as a loan or not against the life insurance policy. Please note that not all ULIP plans can provide the benefits of getting loans, and if it does, it largely depends on the type of fund you have invested in. Moreover, you need to be clear that the loan amount is taxable.
- Policy Eligibility: You must clearly read the terms and conditions before buying a life insurance policy to be clear about whether the policy is eligible for loan benefits or not. You can also speak to the insurer about the same before investing in any life insurance policy if your objective is to get loans.
- Rate of Interest: As we all know that there is a certain rate of interest charged whenever an individual takes a loan, similarly when you are taking loans against life insurance plans, then there is a specified rate of interest charged. The rate of interest in this case depends on the premium amount and the number of premiums paid. The greater the premium amount and the number of premiums paid, the lower will be the interest rate applicable. In almost all cases, when you take a loan against your life insurance plan instead of doing that from banks, then the rate of interest charged will be lower.
- Waiting period: There is a certain wait time applicable when you are planning to take loans against your life insurance plans. The waiting period for taking loans is generally around 3 years. However, even after this period, the lender makes sure that the policyholder has paid all the life insurance premiums on time or not.
- Essential documents: There are certain essential documents needed if you are planning to take loans against your life insurance policy. Some of the essential documents are life insurance policy papers, pre-prescribed forms, and more. You can also contact your insurer to know all about the documentation process.
- Surrender value: There is a definite surrender value calculated on your life insurance plan which is paid out when you decide to exit from the policy. In the case of taking loans against life insurance plans, there must be a certain surrender value attached to your policy, otherwise, you won’t be eligible for taking loans.
- Repayments: Repayment is one of the most important factors that you need to consider when it comes to taking loans against your life insurance plan. The repayment period varies from insurer to insurer, so it is better to check that with your insurer in advance. In case you fail to repay the loan on time, then you will be not eligible for claiming any insurance amount at a later stage.
How To Apply For Loans Against Your Life Insurance Plan?
The process of applying for loans against a life insurance plan is quite simple. Here is all that you need to do:
- As discussed, you first need to check whether your plan is eligible for acting as loan collateral or not. In case you don’t have one, you can simply purchase an eligible life insurance plan that allows the benefit of allowing loan sanctions.
- After checking the eligibility of your plan, you also need to find the right lender who is ready to help you with loans against your life insurance plan.
- Finally, you can visit the lender’s office or simply go for an online process to get your loan sanctioned. Just make sure that you have all the documents ready with you for providing loans.
Thus, you can easily get loans against your life insurance plan by keeping the above factors in mind. Just ensure to pay the loan amount on time, or else there will be certain consequences that you need to face.
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