In addition to the insurance plans, Life Insurance Corporation of India (LIC) also provides secured personal loans using its life insurance policies as collateral. This loan commonly known as loan against LIC policy have flexible-end use with competitive interest rates that can be used by the borrower to deal with various expenses. Loan against insurance policy requires the borrower to submit the insurance policy with the lender as collateral. If the borrower is unable to pay back the loan, then the lender reserves the right to hold on to the policy till the debt is cleared by the borrower.
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Loan Against LIC Policy Interest Rates
Life Insurance Corporation of India is not the only bank that offers loans against LIC or other life insurance policies. The interest rates for this loan in case of some leading banks and NBFCs are*:
|Bank/NBFC/HFC||Interest Rate (%)|
|Life Insurance Corporation of India||As per individual applicant profile|
|LIC Housing Finance||14.80 onwards|
|Axis Bank||10.50 onwards|
|Bajaj Finserv||12.99 onwards|
|Kotak Mahindra Bank||10.99 onwards|
*While life insurance policies provided by LIC are accepted by most of the above lenders, in some cases, insurance policies provided by other private insurers are also acceptable subject to applicable terms and conditions.
The following are some key eligibility criteria for those opting for a loan against LIC policy:
- The applicant should be a resident of India and at least 18 years old
- The applicant must have a valid LIC (or other life insurance) policy
- The LIC policy used for obtaining loan has guaranteed surrender value (term plans not eligible)
- At least 3 years of LIC premium has to be paid in full
- The policy has to be assigned completely in favour of LIC
Currently term plans provided by LIC cannot be used as collateral for this secured personal loan as they do not have a guaranteed surrender value. The following are some of the popular LIC policies that can be used as collateral for loan against LIC policy:
- Jeevan Pragati
- Jeevan Labh
- Single Premium Endowment Plan
- New Endowment Plan
- New Jeevan Anand
- Jeevan Rakshak
- Limited Premium Endowment Plan
- Jeevan Lakshya
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How to apply for Loan against LIC policy
Currently you can apply for the same using either the offline method or the online method:
a) Offline Method
The offline method requires you to visit the nearby LIC office and fill out the loan application forms along with applicable KYC documents and submit those along with the original policy document. Once the details of the application are verified, a loan amount of up to 90% of the surrender value of the policy is paid out.
b) Online Method
If you have registered for LIC e-Services, you can log into your online account and check of your insurance policy is eligible for obtaining a loan against LIC policy. If it is, the terms and conditions, interest rates and other features of the loan will be shown to you online. On submission of the application you may be required to upload KYC documents or send those to the nearby LIC Office in order to get your loan application processed.
Documents Required to apply for Loan Against LIC Policy
The following is a list of key personal loan documents that need to be provided in order to apply for this secured loan:
- Original policy document
- Proof of identity: Aadhaar Card, Voter ID Card, Passport
- Proof of residence: Aadhaar Card, Voter ID Card, Driving License, Utility Bills
- Proof of income: Salary Slips, Bank Account Statement
- Deed of assignment
Loan against LIC Policy Portal- Registeration & Login
Life Insurance Corporation of India does not provide a separate loan portal. Hence you need to register and log into the LIC eServices portal in order to access online services related to your LIC policy loan.
a) Registration Process at LIC eServices
The following is a step-by-step guide for registering on the LIC eServices Portal:
Step1. Go to the LIC e-Services Portal and click on the “Don’t Have an account? Sign Up” option:
Step2. Fill out the applicable details in order to sign up for LIC eServices online:
Step3. Once you have clicked “Proceed”, you can complete the registration process by setting up a password of your choice. You either set up a User ID or use your Email/Mobile to log into your account.
b) How to Login
The following is the step-by-step process to log into the LIC eServices Portal:
Step1. Go to the LIC e-Services Portal and provide your User ID/Email or Phone number and password to log into your account.
Step2. On successful login, you can access you policy details as well as the broad range of eServices offered by LIC.
How to make payment of your Loan
In order to pay your loan EMI online, you have to the log into the e-Services portal and then select the loan details option. Subsequently you will see the current details of your outstanding loans such as the EMI due, loan repayment schedule, outstanding loan principal and much more. You can make payment of the loan EMI online using credit card, debit card or Internet banking of leading Indian banks.
Loan Repayment Schedule
The minimum tenure for which a loan against LIC policy is granted is 6 months. Even if a longer tenure loan is prepaid, the minimum period following which pre-payment can be made is 6 months. The complete loan repayment schedule is provided to the borrower at the time of the loan being sanctioned and the same can be obtained online in the LIC eServices portal.
In case of policy maturity/borrower’s death prior to completion of the 6 month period, the policy proceeds will be used to settle the loan and interest will be charged only for the period the loan was outstanding.
You can follow the following procedures to repay the loan:
- Pay interest along with the principal
- Pay interest for a few years and repay the principal when you have excess cash
- Pay only the interest and principal amount can be settled with the claim amount on maturity
Under existing rules, the maximum loan amount that can be sanctioned in case of a loan against LIC policy is up to 90% of the surrender value at the time of the application. In case of paid-up plans, this limit is lower at 85% of the surrender value. In both cases, this is inclusive of the cash bonus that may be applicable to the life insurance policy used as collateral.
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Terms and Conditions
The following are some of the key terms and conditions related to loan against life insurance policy issued by LIC:
- The minimum tenure for a loan against LIC policy is 6 months
- Applicant will have to pay at least 6 EMIs before they can prepay their loan
- In case the policyholder dies, the interest will be calculated till the date of his or her death
- In case the policy matures, then the maturity amount can be used to pay off the remaining loan principal amount
- Only LIC policy holders with endowment plans can avail this loan
Features of Loan Against LIC Policy
Some key features of this secured loan are as follows:
- The loan is valid for only LIC endowment policyholders
- The loan amount given is an advance on the surrender value of the plan
- The insurance policy is held as collateral by the LIC. Hence, the insurance company can withhold the policy in case the applicant defaults on his/her loan repayments
- Not all insurance policies by LIC have this feature. Therefore, it is important to pick the correct policy so that the applicant can avail the loan without any inconvenience
- The rate of interest on the loan usually varies between 9-11%.
- The amount of loan that can be borrowed depends on the surrender value of the LIC policy. Usually, the loan amount goes upto 90% of the policy value. For paid-up policies, this amount is 85%.
- If the loan debt exceeds the surrender value of the policy, then LIC reserves the right to terminate the policy
- If the insurance policy matures before the loan is repaid in full, then LIC reserves the right to deduct the necessary amount, before handing over the proceeds of the plan to the policyholder
The following are the key benefits of loans issued using LIC policy as collateral:
- Lower interest rate: The interest rate offered by LIC against LIC policy is comparatively lower as compared to other banks. LIC charges a low interest rate depending on the policy as well as applicant profile. Moreover the interest on the loan has to be paid semi-annually i.e. twice a year.
- Loan Amount: The maximum loan amount that can be availed depends on the surrender value of the said policy.
- No credit score needed: If you have a low credit score or no credit score, you can still avail this loan against LIC policy as this is a secured loan that uses the LIC policy as collateral.
- Quick processing: The loan application is processed quickly as there are minimal formalities involved and the amount is disbursed to the applicant’s account without any hassle.
- Low processing fees and prepayment charges: Unlike banks and NBFCs, LIC charges minimal or nil processing fees on the loan. Additionally, prepayment charges of the loan are also minimal (if any). This way, an applicant saves on the various costs associated with the loan.
- Flexible payment: Most of the loans allow repayment in EMIs. Loan against LIC policy offers flexibility in repayment and therefore an applicant has a choice to pay interest or both principal and interest or pay off the loan in unequal instalments.
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Frequently Asked Questions (FAQs)
Q1. What is Surrender Value?
Surrender value is the amount that a policyholder gets on an insurance plan if it is surrendered prior to maturity. This forms the basis for the loan against LIC policy, since the loan amount that can be availed directly depends on the current surrender value of the insurance policy. LIC mandates that the loan amount sanctioned will be a certain percentage of the surrender value.
Q2. What is Policy Bond?
A policy bond is the legal document that needs to be signed by the policyholder in order to avail the benefit of the loan policy. It contains all relevant terms and conditions of the insurance policy and the option of a loan (if applicable). This document will be held by LIC if a loan against policy is opted for.
Q3. How to check eligibility on LIC policy?
You may be eligible for a loan using LIC policy as collateral if the following criteria are met:
- The life policy used as collateral is not a term plan and the policy document expressly mentions the option of availing a loan against LIC policy.
- The policy is in effect and the premiums have been paid in a timely manner for at least 3 years.
- The applicant is an Indian citizen aged at least 19 years.
Q4. How much loan amount can I get on LIC policy?
The loan amount is given on the basis of the surrender value of the LIC policy. The maximum loan amount that can be availed will be up to 90% of the surrender value. The maximum loan amount is 85% of the surrender value for a paid-up policy. This includes the cash bonus that may be applicable to the policy.
Q5. Can loan against LIC policy available on all insurance policies?
No, it is not available on all insurance policies. Only endowment plans on which insurance premium has been paid for at least three years can be used to get a loan against LIC policy.
Q6. What happens if the applicant is unable to repay the loan?
LIC policy of the applicant serves as collateral for the loan. If the applicant is unable to pay back his loan, then LIC reserves the right to withhold the policy.
Q7. How is loan against LIC policy different from other loans?
The loan against LIC policy offers low interest rates. In addition, the interest on the loan amount has to be paid on a semi-annual basis. The loan amount is disbursed much more quickly as the applicant’s LIC policy acts as collateral. The loan amount that can be availed depends directly on the surrender value of the loan. Moreover, applicants with a bad credit score can also apply for such a loan.
Q8. What happens if the policy holder dies while he has taken a loan against lic policy?
If the policy holder dies during the tenure of the loan, LIC deducts the interest rate and outstanding loan principal amount from the amount of claim settlement and pays out the remaining to the beneficiaries of the policy.
Q9. Can I get Loan against LIC policy from any bank?
No. At present, only a few banks in India offer loan against LIC policy apart from Life Insurance Corporation of India and its subsidiary, LIC Housing Finance. Some of the leading banks and NBFCs that offer this secured personal loan include HDFC Bank, Axis Bank, Bajaj Finserv and Kotak Mahindra Bank.