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How To Get Loan Against A Life Insurance Policy?

Updated On Oct 12, 2023

Loans against life insurance policies are becoming increasingly common among people looking for personal finance help. Customers, particularly those in financial distress, have been drawn in by the repayment flexibility, as well as the fact that the loan amount can be deducted from the claim amount. Even customers with poor credit find it to be a convenient option because the eligibility requirements for this type of loan are quite simple to meet. The loan is also approved quickly after the application is submitted, usually within seven days. Continue reading to learn more about how to get a loan against a life insurance plan.

Why Should You Get A Loan Against A Life Insurance Policy?

Several factors make this loan option appealing and popular among those in need. The first and most important reason is the low-interest rates available on loans secured by a life insurance policy. Individuals look for low-interest loan facilities when applying for any loans, and this facility can be granted at reduced rates. The reason for this is that your life insurance policy serves as a form of collateral against your loan, allowing lenders to offer you substantially lower interest rates. A high loan amount, relaxed qualifying conditions, and speedy disbursal of the loan amount are some other reasons you should take out a loan against policy of your life insurance plan.

Must Read: How to Select Riders Effectively For Your Term Insurance?

How Can You Get A Loan Against Life Insurance Policy?

The application process for a loan secured by a life insurance policy is easy. You only need to bring your basic KYC documents and a copy of your policy to one of the nearest branches of the lender you wish to borrow from. You must complete the application form and submit your documents there. From one lender to the next, the documentation may differ. Following the documentation, the lender will authenticate your documents, and you will receive the loan amount in your bank account as soon as it is completed.

Which Type of Loan Do You Get Against Life Insurance Policy?

When applying for a loan, it is crucial to understand the type of loan you will receive. Lenders typically offer two types of loans: term loans and overdrafts. In term loans, you will receive the entire loan amount in your account, with interest levied on the entire amount for a certain time. The interest on the Overdraft loan facility, on the other hand, will be paid on the only amount you will utilize. Lenders frequently grant an overdraft capacity in the case of a Loan Against Life Insurance Policy. This allows you to meet your needs by simply using the amount you require.

How Much Loan Amount Can You Get Against Life Insurance Policy?

People have a common misconception that the loan amount is determined by the whole value of their life insurance policy, which is not the case. The loan amount is instead determined by the surrender value of your life insurance policy. Surrender value refers to the amount a policyholder receives from a life insurance company if he or she chooses to surrender the policy before the stipulated maturity date. The loan amount is often 80 percent to 90 percent of the total surrender value of your standard policy. Depending on the lender, this percentage may differ. In the case of a loan against ULIPs, the loan amount is determined by the policy's current market value and the type of fund it is.


Life insurance is primarily intended to provide financial stability to the policyholder's dependents in the event of his or her untimely death. In addition, once the loan is taken out against the policy, the nominee will no longer be the sole beneficiary in the event of the policyholder's unexpected death. Thus, you should only use a loan against life insurance if it is really necessary and no other options are available.

You May Also Like to Read: How to Opt for a Right Term Insurance Policy?

Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.


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