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Know All About Life Insurance And Policy Loans

A life insurance policy is a one-of-a-kind financial tool. It not only helps you guarantee your family's future, but it also gives you a fair return on your investment. Furthermore, in an emergency, a life insurance policy can be used to obtain a loan. Read on if you want to learn more about taking a loan against your insurance.

What is a Life Insurance Plan?

A life insurance policy is a contract between an individual and an insurance company that is legally binding. The person who buys the coverage is responsible for paying the insurer's premiums on a regular basis. In return, the insurer guarantees the beneficiary death benefits if the life assured dies during the policy's term. If the insured individual survives the policy's term, certain life insurance plans provide a lump-sum payment in the form of maturity benefits to the policyholder.

What is a Loan Against Life Insurance Plan?

Taking out a loan against your existing life insurance policy instead of taking out a personal loan or selling your assets for cash is a possible option. Loans against life insurance policies have been popular in recent years as a way to cover emergencies. This is primarily due to the fact that it is a hassle-free option with numerous advantages over traditional loans. In addition to being able to get a loan on your policy quickly, you can also get a considerably lower interest rate than you would on a traditional loan. However, there are a few things you should be aware of before taking out a loan against your insurance coverage.

Can You Get A Loan Against Any Plan?

Before attempting to obtain a loan against your policy, you need to first determine whether a loan can be taken against all life insurance policies. You can get a good indication of whether or not you are eligible by reading the terms and conditions of your policy. If you're still confused, you should contact your insurance provider for more information.

Must read: How Has COVID-19 Challenged The Life Insurance Sector?    

What is the Amount of Loan That Can Be Sanctioned Against Your Plan?

The amount of money you can borrow is determined by the policy's terms and conditions. Some policies enable you to borrow against the sum assured, while others only allow you to borrow against the surrender value. In most cases, insurance providers will only let you borrow up to 80% or 90% of the policy's value.

What Do You Have to Do to Get a Loan Against Your Plan?

In order to take out a loan against your life insurance policy, some basic and minimum documentation is required. You should submit a completed Loan Against Security application form, the original insurance document, address, ID, and proof of income to the nearest bank branch. The bank will tell you specifics such as loan eligibility, repayment terms, and interest rates. 

What Would Happen If You Are Unable to Repay the Loan?

If the loan is not repaid, the interest that has accrued on loan continues to accumulate. When the accrued interest surpasses the plan's cash value, the lender is obligated to cancel the life insurance policy's coverage. The lender deducts a sum equal to the level of default from the policy's surrender value when it is terminated.

Take Away

When the insurance reaches surrender value, you can borrow money up to the set restrictions. It's no surprise that life insurance is an investment you shouldn't overlook when easy borrowing choices like these are accessible to investors.

Also read: 

How To Customize Your Life Insurance With Riders

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

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