The life insurance policy in India is an important financial instrument that provides financial aid to the family members of the insured person. It is a type of investment that offers you satisfactory returns on your investments.
Not only that, you can get a loan on the assured amount under the Life insurance Policy in India in case of emergency. In this article, we will help you to know important features of life insurance policy in India and also about Loan against LIC Policy.
What is Life Insurance Policy in India?
A life insurance policy in India is a type of legal contract that is signed between an individual and the company that is providing the Life insurance Policy. To avail the services like loan against LIC Policy, you need to purchase a Life insurance policy in India. The purchase is made in the form of premiums that are paid by the insured to the insurance company.
After buying a Life insurance policy in India, you become eligible for gaining the death benefits in case you die during the active period of the Life Insurance Policy.
There are many other benefits of buying a Life insurance policy in India that include the Maturity benefits and also a loan against LIC Policy. These services are offered to the insured if he survives the Life insurance policy tenure or during the term of Life insurance policy in India.
The Maturity Benefit is paid in a Lump sum to the insured and the loan against LIC Policy varies from life insurance providers to providers in India in 2021.
Life Insurance for Loan in India
A life insurance policy in India offers you death benefits after you die during the active period of the Life insurance Policy. But what happens if you want to take a loan against LIC Policy in case of financial emergencies. Buying a Life Insurance Policy in India is a financial investment in itself that helps you in your adverse situations in the form of Life insurance for Loan in India. The features of the Life Insurance Policy in India have attractive loan insurance Policies under which you can avail a loan against LIC Policy.
With the change in times, many insurance companies offer many features under their Life insurance Policy like a facility for the Policyholder to avail a loan against LIC Policy that can help him while he is still alive. So, to say, a loan against LIC Policy can help you if you are in a dire need of financial assistance.
The Loan insurance policy of LIC offers a low interest rate to Policyholders that makes it attractive for the general public. The interest rates offered under the loan insurance policy of Life insurance policy in India are lower than that of personal loans offered by financial institutions.
The Policy value of life insurance for loan does not change even if there is a fluctuation in the financial market. These features make a Loan against LIC Policy very attractive for those people who want to have financial security alongside a Life insurance policy in India.
What are the important things in life insurance for loans?
Nowadays buying Life insurance for loan has become a very effective alternative for people. This is one of the very reasons that you need to know the important things to keep in mind if you want to take a loan against LIC Policy.
Here are some important factors you need to consider if you want to go for a Loan insurance Policy under the Life insurance Policy in India-
Life Insurance Policy Period
The first thing before buying a policy is to make sure if your Life insurance policy in India is eligible for the Loan insurance Policy. Not all insurance companies a loan against LIC Policy. You need to check if that if the life insurance policy you are buying is meeting your requirements. Under the loan insurance policy, you can only take a loan against LIC Policy up to the surrender amount. The surrender amount is what you receive if you decide to terminate the Life insurance policy in India.
The loan insurance policy only offers a loan against LIC Policy and not against Term insurance Policy. Term insurance does not have any cash value and they do not offer any returns to the insured. You become eligible for a loan against LIC policy if you pay your Life insurance policy premiums for 3 following years consistently.
While taking a loan against LIC policy, a policyholder is taking a loan on his own money. You can consider it as borrowing from oneself. You do not have to explain to the insurer the reason for taking a loan against LIC Policy. Life insurance for Loans can be provided to you without strict screening and scrutiny. The approval process for loan against LIC Policy is smooth and easy to handle.
A loan insurance Policy does not demand any special financial qualification of a Policy Holder. However, the crucial factor under a Loan insurance Policy is Credit eligibility. So before you think of buying life insurance for loan, you must read all the terms and conditions of the Life insurance Policy.
Amount eligibility for the Loan against LIC Policy
Before buying life insurance for loan, you should contact your insurance company to ask about the loan insurance Policy for the Life insurance Policy. Before buying a life insurance policy in India, you need to confirm how much amount you can take a loan against LIC policy of your choice. The loan can be availed for the surrender amount. Generally, the loan against LIC Policy can go up to 80-90% under traditional plans that have guaranteed returns.
Not all life insurance provides insurance for loan facilities so before opting for an insurance policy make sure that it offers loan insurance for the said insurance Policy in India. The Insurance company decides to offer the loan based on Corpus value and the type of Insurance Policy one is buying.
The amount under the Life insurance for loan is decided by the borrower and approved by the Insurance Company. All the rights under life insurance for loan are bestowed upon the insured. One of the most important features of Life insurance for loan is that there is no Tax applicable on the borrowed amount. The loan against LIC Policy Is not considered as income under the Income Tax law.
Interest Rate (Life insurance for Loan)
The loan against LIC Policy and the interest rate on the loan is decided based on premiums paid by the policyholder. Life insurance for loans is bought by many people to have financial security in case of emergency. That is why it is imperative to know the Interest rates under the life insurance for loans to avoid any additional charges in the future.
The premiums of your Life insurance policy in India are inversely proportional to your interest rate on loan against LIC Policy. It simply means that the higher the number of paid premiums the lower the interest rates.
Most of the Banks charge the interest rate according to their base rate. It Is different for the Insurance companies in comparison to the banks. Banks generally consider these types of loans as overdrafts so the loan becomes costly. The interest rate offered by the banks can be around 10-14 %, It all depends on the Life insurance Policy type and the tenure of that Policy.
Life insurance company which is a renowned Life insurance Policy provider in India charges an interest rate of 9% on the loan against LIC Policy. The interest rate has to be paid every 6 months. LIC has a minimum period of 6 months so you have to wait for the 6 months to pay the interest rates for the said 6 months.
What documents do you need?
There is a different process for different companies if you want to go for a loan against LIC Policy. To know about the documentation process, you need to contact the insurance company of your choice. In general, the policyholder has to apply Life insurance Policy. You need to sign a deed that states the Life insurance Policy rights are transferred to you during the loan period of loan against LIC Policy.
Under this deed, the Life insurance policy is considered as collateral for the loan period. You must pay all the loan against LIC Policy according to the deed.
You can go for a loan against LIC policy right after you buy a life insurance policy in India. To active the Life insurance for loan service, you need to wait 3 years, that is a waiting period, to go for a loan against LIC Policy of your choice.
During this waiting period, your performance is considered concerning the Payment of the Premiums. It is advisable to pay your premiums on time to avoid any hindrance at the time of loan request to the Insurance Company. The loan against LIC Policy depends on the surrender amount of your Life insurance policy in India.
Premiums for the Life insurance for Loan
One thing to note in the loan against LIC Policy is that you have to continue paying the premiums under the loan insurance Policy. In case you fail to pay the premiums under the loan insurance Policy of the loan against LIC Policy, the insurance company is titled to terminate your Life insurance policy in India.
Loan Repayment Policy
If you have purchased life insurance for loan and have taken a loan on it then you have to repay the loan during the life insurance policy period. You can pay the principal amount and interest together or you can opt to pay the interest amount only. In case one does not pay the principal amount at the time of repayment, the amount is deducted from the amount offered to the Policyholder during the settlement process. If the policyholder dies during the loan repayment period, the remaining amount will be deducted from the total death benefit offered to the nominee.
If one dies before paying the loan, the company gains a portion of the amount offered by the Life Insurance Policy. If you do not want such a situation to arise, you have to be cautious during the loaning period. It is one of the most difficult decisions as the life insurance policy provides a financial assistant to the family members of the deceased. in case one dies during the loan repayment period, the family members will have to bear the consequences.
What are the plus points of life insurance for loan?
Although there is a little risk in taking a loan against LIC Policy you should only borrow if there is a financial emergency. Here are some of the important points concerning Life Insurance for Loans-
CIBIL Score is not considered
If you want to buy Life insurance for loans, at the time of loan is being sanctioned, banks do not go through the CIBIL score of the Policyholder. This gives you the option of having a financial assistant without much hassle.
Easy loan sanctioning process
It can be very useful for those people who do not like to go through a screening done by the financial institutions to provide a loan or for those people who do not have a good CIBIL score but want a loan under urgency.
The low-interest-rate in comparison to Personal loans
Life insurance for loans can be considered as another best option to avail a loan service in comparison to personal loans. The personal loan has a very high-interest rate. It can be around 10-24%. Whereas life insurance for loans offers a minimum interest rate. The interest rate is around 10-12% for the Life insurance for Loan in India in 2021.
Simple documentation process
You want to borrow under life insurance for loan, you can borrow it with a simple documentation process. It is easy to borrow an amount under life insurance for loan than a Bank. The process to sanction a loan to the Policyholder is fast and easy.
Why is the Life Insurance for Loan is getting so popular?
Life insurance for loans is getting popular for many reasons. The most important reason is the low-interest rate. Life insurance for loans offers a lower interest rate in comparison to personal loans. The interest rates of Life insurance for loans are decided by the times of Premium already paid. In case the borrower fails to return the borrowed amount, the Life insurance for loan is terminated and the loan amount is deducted from the amount assured under the Life insurance Policy.
Loan against Life insurance Policy – FAQs
Q1. What is Life insurance for loans?
Ans. These days people purchase life insurance for loans to aid themselves from any financial emergency. The interest rate of the life insurance for loan is low under its loan insurance Policy.
Q2. Do the insurance companies consider the CIBIL Score while sanctioning loan against life insurance?
Ans. No, The Insurance companies do not consider the CIBIL Score while sanctioning a loan against life insurance. This makes it attractive for those people who can take loans because of their low CIBIL Scores.
Q3. How is Life Insurance different from Term insurance?
Ans. Life insurance is different from term insurance in the sense that it provides maturity benefits and death benefits. Term insurance only provides death benefits to the Policyholder.
Q4. Are there any tax benefits if I take a loan against my Life Insurance?
Ans. Yes, you get tax benefits on the amount borrowed under the Life insurance Policy as the amount borrowed is not considered as income.
Q5. How much loan is offered under the Life insurance Policy?
Ans. You can avail a loan of up to 80 – 90 % of the surrender value of your Life Insurance Policy.
Q6. What happens if I die during the loan repayment period?
Ans. If you die during the repayment period of the loan, the remaining amount will be deducted from the amount assured under your Life insurance Policy.
Q7. What are the disadvantages of taking a loan against LIC policy?
Ans. There are a few disadvantages of taking a loan against LIC policy –
- Lapse of insurance policy in case you fail to repay the borrowed amount
- Not all life insurance Policy offers a loan facility
- You can not take a loan right after you buy the Life insurance
Q8. Is there any fixed tenure for loan repayment under the Life insurance Policy?
Ans. The loan can be paid off by the borrower within the term of Life insurance in most cases. However, the process can be different for each insurance company.
Q9. What are the benefits of buying Life insurance for loan?
Ans. Here are some of the benefits if you are considering buying Life insurance for loan purposes-
- Low interest on loan
- Easy documentation
- Up to 80-90% of the assured amount
- Can pay with flexible repayment period.