Loan Against LIC Policy: Check Interest Rates, Eligibility and More

Here’s a detailed look at the scenario and key aspects of a loan against LIC policy, including eligibility, loan amount, interest rates, repayment tenure, and how you can apply.

Loan Against LIC Policy with a Yearly Premium of ₹50,000 and 15-Year Policy Duration

Consider the following:

Policyholder: Rahul Sharma
Policy: LIC Endowment Policy
Premium: ₹50,000 per year
Policy Duration: 15 years
Surrender Value of Policy (after 15 years): ₹7,50,000

Rahul Sharma has been paying an annual premium of ₹50,000 for his LIC Endowment Policy for the past 15 years. After this time, his policy has accumulated a surrender value of ₹7,50,000.

How Much Loan Amount Can Rahul Borrow?

The amount you can borrow depends on the surrender value of your LIC policy. The loan amount is decided on various factors, such as the policy’s duration, accumulated bonuses, and the surrender value at the time of the loan application.

LIC generally offers up to 90% of the surrender value for active policies. However, if your policy has been paid up (i.e., premium payments have stopped), you can borrow up to 85% of its surrender value.

With Rahul’s policy being active for 15 years, he can borrow based on the surrender value:

• Maximum Loan Against Active Policy: 90% of surrender value 
• Loan Amount:
  90% of ₹7,50,000 = ₹6,75,000
  So, Rahul can borrow a maximum of ₹6,75,000 against his LIC policy.

If Rahul’s policy had been paid up, he could have borrowed 85% of the surrender value, which would have been ₹6,37,500. However, since the policy is still active, he is eligible for the higher loan amount of ₹6,75,000.

Loan Against LIC Policy: Repayment Terms

LIC does not have a fixed EMI schedule for loan repayment. The repayment terms are more flexible, and you can either make a lump sum repayment before the policy’s maturity or choose to pay in regular instalments to reduce both the principal and interest over time.

What are the Eligibility Criteria for a Loan Against LIC Policy?

• Surrender Value: Only policies with a surrender value (e.g., endowment, whole life, money-back) are eligible. Term plans and ULIPs are not. 
• Active Policy: All premiums must be paid. Lapsed policies must be revived before applying. 
• Policy Tenure: Must be in force for at least 3 years. 
• Applicant: Only the policyholder can apply, not the nominee or beneficiary. 
• Minimum Age: Applicant should be 18 years or older.

Interest Rate for Loans Secured Against LIC Policies

The interest rate for a loan secured against a Life Insurance Corporation (LIC) policy typically falls between 9% and 11%. This is generally lower than the rates offered on standard personal loans, as the risk to the lender is reduced—thanks to the loan being backed by the policy’s surrender value. It is advisable to confirm the latest applicable rate directly with LIC or your financial institution, as rates may vary depending on current terms and conditions.

Things to Keep in Mind

• Your LIC insurance policy acts as collateral in the loan against an LIC policy
• The Life Insurance Corporation of India allows policyholders to avail loans against specific insurance plans, such as endowment plans, whole-life plans, money-back plans, and pension plans
• If you default on the loan, LIC can recover the amount from the policy’s maturity or death benefit

Conclusion

A loan against your LIC policy is a simple and hassle-free way to obtain quick financial assistance while keeping your policy intact. The eligibility criteria are clear, and the loan process is straightforward, whether you choose to apply online or offline. Additionally, the repayment options offer flexibility, making it a convenient option for many policyholders.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.