Can Your Clients Get a Loan with Life Insurance Policy?

Life Insurance

The loan against the life insurance policy is a convenient way to have a high-ticket credit. This type of loan is considered to be a secured loan. This is a financial contract between lenders and individual borrowers. Lending institutions offer a loan amount depending on the surrender value of the existing policy. Also, the interest rate changes based on loan repayment options offered by the insurer.

Which type of life insurance policies provide a loan?

Not every life insurance policy or term insurance policy offers a loan against the coverage. Only moneyback plans and endowment policies provide loans. These policies build cash value over a period. This further can be borrowed against, offering a source of liquidity for policyholders when needed.

How to apply for a loan?

Your client can borrow money against the life insurance policy. But, before applying, it is necessary to know the eligibility criteria. If you meet the eligibility criteria, apply for the loan:

  • Check if your life insurance policy has a surrender value and read the policy document to check if your plan has an option of a loan.
  • Before you opt for a loan, understand the terms and conditions of the loan including repayment options, interest rates, etc.
  • Fill out the necessary form with the right information. You may have to provide information about how much loan you want to take and the purpose of taking the loan.
  • Submit the relevant documents so that the insurance company can check everything.
  • Then you must wait for the approval. Once the company approves your request, you will get the amount.

Remember, you must always repay your loan on time to avoid unnecessary problems.

Top 4 things to keep in mind when applying for a loan against your life insurance plan:

To get the maximum benefit of the loan against life insurance, you need to know some basic things. This will help you understand if it is a suitable option for you.

  1. The borrower can only avail of the loan only if the individual has paid the renewal premiums daily for at least three years.
  2. The loan amount you will borrow from your life insurance is based on its surrender value. It generally is around 80% of that particular value. For instance, if the surrender value of the policy is Rs. 3 Lakh, you may take a loan up to Rs.2.4 Lakh.
    This percentage is only indicative. It might change from plan to plan.
  3. The interest rates on these loans vary among the insurers. Also, it depends on how long you have been paying the premiums. The repayment terms of the loan differ too. A few insurers allow you to pay only the interest. They let you deduct the principal from your final settlement when the policy ends.
  4. All the borrowers must repay the loan within the terms of the policy. It ensures you get the maturity benefit, which could be important for your future needs. Also, keep your eyes on the policy and loan to make a sound decision.


A loan against your life insurance can be a valuable financial resource at the time you need it. So, understand its terms properly, and check eligibility criteria, repayment options, etc. to make an informed decision.

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