Do you have a life insurance policy? Perhaps you were planning for your long-term financial resilience, perhaps it was about creating a safety net for your family, or both. But did you know that life insurance can also be used as collateral to access affordable credit? If you are looking for liquidity and considering surrendering your life insurance policy, think again!
Taking a policy loan is likely a better financial outcome for you. In this piece, we make it easy for you to determine your loan against LIC Policy eligibility. Check how much you can borrow against your life insurance policy with our Loan against LIC policy and Loan against SBI Life policy Loan Eligibility Calculator.
Let’s understand first what is “loan against LIC policy” and what advantage it gives you.
What is a Loan Against Insurance Policy?
A Loan Against LIC Policy or any other life insurance policy lets you borrow money by using your life insurance policy as collateral. This option helps you get funds without having to give up your policy. The loan amount is based on a percentage of your policy's surrender value. For traditional policies, you can borrow 80-90%, whilst for ULIP plans, the loan amount ranges from 50-65%. With the overdraft option, you only pay interest on the amount you use, making it a flexible and affordable way to access funds when needed.
Advantages of a Loan Against a Life Insurance Policy:
- No Policy Surrender: Keep your life insurance policy active whilst borrowing money.
- Lower Interest Rates: Typically comes with lower interest rates than unsecured loans.
- Flexible Loan Amount: You can borrow up to 80-90% of the surrender value for traditional policies and 50-65% for ULIP plans.
- No Credit Score Needed: Eligibility doesn’t depend on your CIBIL score or income documents.
- Helps Improve CIBIL Score: Timely repayments can boost your CIBIL score.
How Does the Loan Eligibility Calculator Work?
Using the Mera Kal Loan Eligibility Calculator is simple and efficient. Follow these steps:
- Select Your Policy: Choose your life insurance policy from our extensive list. If it's not listed, contact us for assistance.
- Enter Policy Details: Provide details like Sum Assured, Premium Amount, Policy Term, Premium Frequency, and Start Date.
- Estimate Loan Amount: Click on “Estimate Potential Loan Amount” to get an approximation based on your policy’s surrender value.
- Provide Your Contact Details: Enter your name, mobile number, and gender as per your Aadhaar.
- Adjust Loan Parameters: Customize your loan by selecting:
- Loan Amount (within the eligible range)
- Loan Tenure (1 to 3 years)
- Repayment Frequency (Monthly or Half-Yearly)
- Download Your Report: Get a customized report with your estimated loan details and an analysis on whether taking a loan or surrendering your policy is a better financial decision in your case, to help you make an informed decision.
How is the Loan Amount Calculated?
The loan amount is determined by the surrender value of your life insurance policy and is calculated using a Surrender Value Factor. The SVF varies across different insurance companies and policies. The LTV ratio typically ranges from 50% to 90%, so the loan amount is based on this percentage of your policy’s surrender value.
How to Apply for a Loan Against Your Life Insurance Policy?
The application process for a loan against LIC policy is simple and can be done digitally. Here’s how:
- Upload Your Policy Document: We will check if your policy qualifies for a loan.
- Complete Digital KYC: Verify your identity and bank details through a penny-drop process.
- Choose Loan Type: Opt for either a term loan or an overdraft facility based on your needs.
- Pledge Your Policy: Assign your life insurance policy to the lender as collateral.
- Receive Your Loan Amount: Sign the loan offer, and the funds will be disbursed directly to your account.
Mera Kal gives you two loan options to choose from: Overdraft and Term Loan. Here’s how they compare, to help you decide:
- An Overdraft offers a flexible solution, whereby the borrower pays interest only on the outstanding principal. The borrower can also draw down on the loan limit and repay in full multiple times during the year if required. Overdrafts are typically sanctioned for 12 months, but can be renewed at the end of the term again and again.
- A Term Loan, is a more traditional loan instrument, whereby the borrower pays a fixed equated monthly installment (EMI) each month. The entire loan is disbursed upfront, but there is no penalty for early repayment. Term loans thus offer predictability in the borrower’s obligations.
Conclusion
Loans against life insurance policies offer a valuable avenue for those seeking loans without the constraints of a CIBIL score or income proof. With the added benefit of low-cost financing, this financial tool provides a practical solution for individuals looking to unlock liquidity while preserving the security of their life insurance policy.
As with any financial decision, it is crucial to make informed choices that align with your unique financial circumstances. If you would like advice on what the best product for your context is, contact us, and one of our Saathis will be more than happy to assist you.