However, those choosing for a loan against single-premium traditional policies -- namely Jeevan Vridhhi (Plan 808), Jeevan Vaibhav (Plan 809), Jeevan Sugam (Plan 813), Jeevan Shagun (Plan 826), Jeevan Sangam (Plan 831) and Jeevan Utkarsh (Plan 846) -- will cover the steepest interest rate of 10 percent yearly.

Know about loans against insurance policies

"The revised rate will be related to the new loans being availed by policyholders and there will be no change in respect of current loans," explains LIC.
By the last Annual Report of the business, Rs 1.14 lakh crore has been given out as loans in India, of which 99.98 percent are awarded against non-linked policies or traditional coverages as on March 31, 2019.

Loans against insurance policies

Loans against insurance policy

  • The Way the loan from insurance policy functions

The rate of interest offered on loans from insurance coverages are lower, at 9-10 percent, in comparison with private loans which come at a steep price tag of 15-18 percent and charge card debt, which costs you 36-52 percent.
The best part is the insurance behemoth doesn't consider the credit value or the CIBIL score for a parameter for supplying this loan as it's an advance paid contrary to the policy maturity proceeds. However, income evidence and bank statements aside from the first policy documents are needed while asking for a loan.
You can get a loan for as many as 90 percent of the surrender value of a policy, even if the premium has been paid for three successive years, with no break. Also, these loans are offered just for endowment, whole life, and money-back policyholders and not for term plans or ULIP customers.

During the first years of a policy, you would hardly have the ability to make an application for a sufficient loan amount," indicates certified financial planner Pankaj Made.
Also, you have the choice of accepting a loan from any lender against the insurance policies, but the rate of interest will disagree.

As branches in select regions would nevertheless be closed throughout the present lockdown, you can apply for loans against policies simply by going online.

  • What's the interest paid?

While repaying the loan, you may either service the whole loan, including the principal or simply pay the interest. The remaining part of the loan principal could be settled from the policy amount at maturity.

"You should always make sure you never miss the interest," Made warns, indicating that the policy may be terminated if the entire amount outstanding exceeds the surrender value.
If you take a loan against coverages offering pension at fixed intervals, then the interest would be subtracted from the sum that's paid as pension or annuity.
The loans obtained against insurance policies will not be eligible for the moratorium that debtors were given recently by banks to tide over the COVID-19 crisis.
Loans from insurance policies are only advanced from the policies. Should you default, the insurance carrier would simply waive your coverage and recover its dues.