Loan Against LIC Policy: Navigating Financial Challenges (2024)

You may be able to obtain a loan when you need it by using your Life Insurance Corporation (LIC) policy as collateral. With loans backed by LIC policies, you can get money quickly and easily without having to worry about a lot of paperwork or credit checks. To find out everything you need to know about getting a Loan Against LIC Policy, follow this guide.

What is a Loan Against LIC Policy?

An honor. A loan that is backed by your LIC policy is available to you. Until the borrower repays the full loan amount, the policy is attributed to the lender. If the borrower defaults on the loan, the lender is fully protected by the policy. The life insurance policy will remain in effect throughout the loan term, and the insured will continue to pay the regular premiums. You may obtain a loan against your insurance policy from a private insurer.

What Kind of LIC Policy Can Be Used for Availing a Loan?

Term and surrender value are the two categories of life insurance policies that were previously discussed. Nonetheless, the only types of policies that can be used as security or collateral against a loan are endowment or money-back plans. This is so because, under insurance plans, the entire amount insured is only paid out if the insured passes away. Not all lenders will accept Unit Linked Insurance Policies, which have values tied to stock market fluctuations, as security for a loan.

Stated differently, a loan can only be obtained for policies with a guaranteed surrender value. The amount payable upon surrendering an insurance policy at any given time is known as the surrender value.

Features of Loan Against LIC Policy

  • Loan Amount: The loan amount is an advance determined by your LIC policy’s surrender value.
  • Collateral: Your LIC policy is pledged as security against the loan.
  • Policy Type: Only policyholders with LIC endowment plans are eligible for this loan.
  • Loan Limit: Usually, you can borrow up to 90% of the value of the policy. This sum is typically 85% for paid-up policies.
  • Interest Payment: The loan amount’s interest must be paid on a semi-annual basis.
  • Quick Disbursal: The loan amount is disbursed promptly because your LIC policy serves as collateral.

Where Can a Loan Against a LIC Policy Be Availed?

  • Axis Bank
  • HDFC Bank
  • State Bank of India
  • Kotak Mahindra Bank

Documents Required

  • Address proof
  • LIC policy documents
  • Valid ID proof (Aadhaar card, PAN card, etc.)

What is the Interest Charged on a Loan Against the Insurance Policy?

The interest rate charged by the Life Insurance Corporation of India ranges from 9 to 10%, depending on the insurance plan. Conversely, banks charge a fee of 10% to 15% for loans that are backed by insurance policies. However, a lot of banks only provide their account holders with loans, overdrafts, and insurance policies against LIC.

How to Apply for a Loan Against LIC Policy

  • Check Eligibility: Make sure you fulfill the prerequisites.
  • Contact LIC: Go online or stop by the LIC branch that is closest to you.
  • Submit Documents: Send the required paperwork, along with the specifics of your LIC policy.
  • Loan Approval: The loan amount will be credited to your account after it is approved.


Q1. Is it feasible to get a loan against a low credit score for an LIC policy?

A. Yes, you can obtain a loan without having your credit checked out using your LIC policy. As a result, your eligibility for this loan is unaffected by your credit score.

Q2. Can I use the loan amount for anything?

A. Yes, just like a personal loan, you can use the funds from your LIC policy for any purpose you want.

Q3. What will happen if I am unable to repay the loan against my LIC policy?

A. If the borrower does not pay back the loan in full, the lender may lose all policy benefits. To prevent undesirable consequences, the borrower must make repayment on schedule.

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