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How to Apply for A Loan Against Life Insurance Policy If You Need Quick Cash?

Published On Apr 08, 2021, Updated On Apr 26, 2021

We are facing the worst pandemic. Jobs and incomes have been seriously impacted by the lockdown and the economic recession. Although the situation can be expected to limp back to normal, all of us need cash to tide over these precarious times quickly.

Cash sources, such as private loans, are easy to use but come with very high-interest rates. You can take out a loan against any of your assets in such a case. When we think of life insurance, we think of protection, however, you can also get a loan against your life insurance policy

Loan Against a Life Insurance Policy: Important Things to Know

There are several factors you need to keep in mind before opting for a loan against your life insurance policy. The following are some of the important points.

Also Read:- Advantages of Buying Life Insurance Plan at Early Age

1. Eligibility

You need to check whether your policy qualifies for a loan since all insurance plans do not offer this advantage. You may take a loan against your permanent/whole life insurance surrender value, however not against term insurance. Unlike other contracts, term plans do not include cash value and expire without generating returns at the end of the term; hence the restriction.

2. Loan Amount

You need to check the amount with the insurance provider or the bank for which you are eligible. Loans can be given up to 90 percent of the surrender value of traditional plans with assured returns. Loan facilities are not given against unit-linked policies, but if they are provided, the loan amount depends on the present value of the corpus and the form of fund. Once the amount of the loan is determined, then the lender is assigned the policy. This implies that the lender is assigned all rights of the policy, and the loan is then approved. 

3. Interest Charged

The interest rate payable in the case of an insurance policy loan is dependent on the amount of the premium already paid and the number of premiums paid. The higher the value of the premium and the number of premiums paid, the lower the interest rate charged.

4. Documentation

A pre-prescribed form will have to be filled, and it will be necessary to submit the original insurance policy. A deed of assignment that specifies that the benefits of the policy are transferred to the lender during the loan term will also have to be signed by the policyholder. Till the debt is paid back, the policy will act as ‘collateral’.

5. Premium

Policyholders must continue paying premiums upon getting a loan against the life insurance policy. Any insurers may terminate the policy in such a situation that the policyholder refrains from doing so.

6. Repayment of Loan

During the term of the policy, the loan can be paid back. The policyholder has the option to either pay the principal back along with interest or simply the rate of interest. If one pays only interest, the principal amount owed at the time of payment will be reduced from the claim amount.


Loans against life insurance are increasingly becoming the preferred option in recent times to cover emergency expenses. You will also enjoy an interest rate that is significantly cheaper than the rate on traditional borrowings, in addition to being able to easily avail of a loan on your policy. That said, before you take a loan against your life insurance policy, there are a few significant things, as mentioned above, you should remember.

You May Also Like to Read:- Should I Get More Than One Term Insurance Plan?

If a Policyholder Becomes Insolvent, Is There Any Way He Can Protect the Life Insurance Policy?

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