How to take a loan on LIC policy and eligibility criteria

Taking a loan against your LIC policy can be an effective way to meet urgent financial needs without disturbing your long-term investment plans. Many policyholders are unaware of how to take loan on LIC policy or the loan eligibility LIC policy offers. This guide will explain the process, the eligibility requirements, and what you need to know before you apply for a loan against your LIC policy.

What is a loan against LIC policy

A loan against your LIC policy is essentially borrowing money using the policy’s surrender value as collateral. The surrender value is the cash amount available if you choose to forego your policy before maturity. LIC offers this loan facility to policyholders to ensure they can access funds while their policy stays active.

Unlike traditional loans from banks which might require documentation, credit checks, or collateral, LIC policy loans are quicker and easier. The interest rates are usually lower than personal loans. However, the loan amount depends on your policy’s surrender value and the policy type.

How to take loan on LIC policy step-by-step

Applying for a loan on your LIC policy involves a straightforward process, often proving to be a better alternative to personal loans due to lower interest rates and the absence of credit score requirements. If you are looking into how to take loan on lic policy, follow these simple steps to unlock the value of your insurance:

1. Confirm eligibility: First, check if your LIC policy qualifies for a loan. Typically, loans are available on policies that have completed at least three full years. Policies like term insurance plans usually don’t offer loan facilities.

2. Prepare documents: Gather your original LIC policy bond, identity proof, address proof, and recent photographs. These may vary slightly depending on your branch or mode of application.

3. Visit the LIC branch or agent: Approach your nearest LIC branch or your insurance advisor with the documents. You can also check if LIC allows online applications for loans against policies, although personal visits ensure faster processing.

4. Submit the loan application: Fill out the loan application form and attach necessary documents. The LIC office will verify your policy details and calculate the loan amount based on the surrender value.

5. Loan disbursal: Once approved, LIC disburses the loan amount usually within a few days. The amount is credited to your bank account or given as a cheque.

6. Repayment: You must repay the loan along with the interest on time. Until repayment, the loan amount plus interest gets deducted from the policy maturity proceeds.

Loan eligibility LIC policy explained

Understanding the loan eligibility LIC policy provides is crucial before applying. Here are the key points that define eligibility:

- Policy duration: Your policy must have completed at least three continuous years. Only then does the policy accumulate a surrender value substantial enough to borrow against.

- Policy type: Mostly, endowment plans, money-back plans, and whole life policies allow loans. Pure risk plans like term insurance or policies where no surrender value exists are not eligible.

- Surrender value: The loan amount usually does not exceed 80% to 90% of the surrender value. This ensures LIC has enough security in case the loan is not repaid.

- Policy status: The policy must be active, with all premiums paid up to date. Policies in premium default are generally not eligible.

- Documentation: Proper documents as prescribed by LIC are mandatory for loan eligibility.

Interest rates and repayment details

The interest rate on LIC policy loans is generally lower than unsecured loans from banks. Currently, LIC charges an interest of about 9.5% annually on loan amounts. The interest calculation is simple and does not involve complex compounding.

You have the flexibility to repay the loan in part or full at any time. The outstanding loan balance plus interest gets subtracted from your policy maturity amount or death benefit if the loan is unpaid till then.

Conclusion

Knowing how to take loan on LIC policy is valuable information if you need fast funds during financial emergencies. The loan eligibility LIC policy guidelines ensure you borrow responsibly and within limits. Before applying, evaluate your policy type, duration, and surrender value to understand how much you can borrow. Taking a loan on your LIC policy can be a cost-effective, speedy alternative to other borrowing options when used wisely.