How to Apply for Loan Against Insurance Policy?
Turbulent times may strike anytime on anyone in the form of unemployment, accident, or any other health issues. In such a scenario, asking out for a personal loan may be the only viable option that exists at that point in time. However, once you borrow money, the interest rate is automatically applied to the entire principal amount, and you may require longer periods of time to repay the same.
Again, banks issue a fixed period of time to repay the loan you have taken, and taking a personal loan becomes quite a hassle. This is where a personal loan against insurance comes into play. Under the personal loan against an insurance policy, you vow your financial assets like mutual funds, stocks, and bonds to the specific bank that offers you the loan. The interest rates are applicable to only the funds that have been borrowed.
Features and Benefits of Loan Against Insurance Policy
Globally speaking, the concept of loans against insurance policy has earned quite a good reputation. In the Indian banking setup, too, this scheme is available but yet to gain large scale popularity among the masses.
The following are the main features of this loan:
- Repayment: Repayment choices are volatile and can be extended or reduced depending on the insurance holder.
- Higher interest rates: For loans against insurance, the rate of interest is estimated to be quite high and fierce compared to other loans.
- Higher loan value: You can loans up to Rs.25 crore (depending on the policy) to finance a range of needs.
- Easy eligibility criteria: The presence of an insurance policy assures relaxation when it comes to eligibility criteria.
- Hassle-free documentation: Unlike other loans where heavy documentation and identity proofs are demanded, this scheme requires minimal paperwork to be done.
Eligibility Criteria for Insurance Loan
| Lower age limit | 18 years |
| Upper age limit | 65-70 years of age |
| Employment status | Self employed or receiving income |
| Minimum income | 3,00,000 INR per annum. |
| Work experience | Minimum 1- 1.5 years |
| Maximum loan amount that can be issued | Up to Rs.25 crore* |
| Credit score | A good CIBIL score of 750 and above |
| Repayment period | Ranges from 15-20 years. |
For self employed applicants the eligibility criteria furthers as follows:
| Minimum business experience | Varies as per the bank |
| Minimum profit after tax | 2,00,000 INR |
| Minimum prior relationship with lender | At Least a period of 6 months |
*Depends on the policy terms & conditions
Why take Loan Against Insurance
Considering obtaining a personal loan in times of turmoil comes with its own sets of worries like spending a major chunk of your money repaying the loan in a fixed period of time. To put an end to this, loan against life insurance policy offers a better alternative with added advantages.
- The interest rate charged on the borrowed money completely depends upon the number of premiums you have paid before; the more premiums you pay, the less interest is charged upon the loan.
- Unlike other loans that need a person to undergo strict scrutiny , this money can be made available to you without any questions asked.
- Loan amount is issued to you regardless of the fact that you have assets as you already have a life long insurance.
- The loan needs to be repaid during the period of paying your premium amount.
How to Apply for Loan Against Insurance
You can apply both online or offline. However, the first thing you should do is ask the bank or the insurance company regarding how much loan you are eligible for. Then, you have to assign the policy to the lender. This means that all the rights of the policy will be transferred to the lender.
It usually takes 3-4 days to sanction the loan, however this may vary from lender to lender.
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Documents Required for Loan Against Insurance
Application for loan against policy requires basic documents like:
- Address proof
- ID proof
- Insurance policy documents
- Passports size photograph
- KYC documents.
Things to keep in mind for loan against insurance
- Buying lifelong insurance won’t assure you of a loan against insurance immediately. You would be required to wait for a minimum period of three years so that the bank/lender can assess your premium paying abilities in order to hand over the loan to you.
- Loan amount sanctions are dependent upon the surrender value of the policy.
- Repayment of the loan amount can be done as long as the policy period lasts.
- In case one defaults on their loan repayment and premiums, the policy will lapse and the entire purpose of taking the loan fails.
Alternatives for Loan Against Insurance
- Loan against gold is another alternative where instead of insurance policies, gold works as the collateral. The amount of loan issued depends on the amount of gold kept in exchange for the loan. Loan against fixed deposit-if you have a fixed deposit, you can make use of this opportunity.However, it is essential that you visit the bank physically to avail upto 90% of the deposit.
- Loan against property can be another alternative. It’s a loan that is issued based on the valuation of your property. You are eligible for a higher loan in case the valuation increases. Loan against mutual funds-here, the loaned amount is found to be lesser than that of mutual funds value.
Final Word
Saving for emergencies is a good measure to up your game and have yourself prepared. However, the latest concept of loans against life insurance policies prove to be a game changer for people who do not wish to deal with the after-math of taking a cash loan. These schemes are user friendly , allowing a minimal interest rate based upon the premium payments and very flexible periods for repayment. If you are looking to avail health insurance or personal loan through a fast, 100% paperless and zero hassle process – you can do so with Navi App.
FAQs on Loan Against Insurance
1. What are the advantages of loan against insurance policy?
Some of the advantages are:
- Getting increased loan amounts
- You can get loans with very less documentation
- Interest rates imposed can be lower than personal loans and payment duration is flexible
2. What are the disadvantages of availing loans against insurance policy?
Some of the disadvantages of loan against insurance are:
- Your policy might lapse in case you default
- Low amount if you apply during the early stages of your policy
- You can only get the amount sanctioned after your policy’s waiting period
3. What’s the tenure of loan against insurance?
Tenures are usually flexible and can vary from lender to lender. You can get in touch with your lender to understand the exact terms and conditions of your loan against insurance.
Before you go…
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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