As uncertainties remain high due to lockdown, life insurance policy has become a versatile investment option. However, life insurance policy can do more than just giving an insurance cover. It can also be used to raise loans if one finds oneself stuck in the middle of financial crunch.
Here are key things to know about loan against insurance policies
When can one avail it?
Loans against insurance policies can be availed in case one pledges specific traditional policies like money back and endowment policies, say experts.
Such plans have a life cover option in addition to the saving factor which makes them acceptable to banks.
"It is important to understand that unit-linked insurance plans and term insurance are not accepted as collateral. The surrender value should be acquired by the plan only if the policyholder is to gain eligibility or the loan," explains Naval Goel, CEO & founder, PolicyX.com -- an insurance comparison portal.
It is also vital to assign the plan in favour of the insurance company.
"This feature is valuable for customers who are looking for financial assistance or if they are facing any liquidity crunch. Customers should know that their life cover on the policy that they availed the loan on will continue," adds Kayzad Hiramanek EVP-Customer Service and Operations- Bajaj Allianz Life insurance.
Who provides these?
According to BankBazaar, LIC apart, several other life insurers such as Edelweiss Tokio Life and ICICI Prudential Life in addition to many other banks including HDFC Bank, ICICI Bank and the State Bank of India grant loans to customers against insurance policies.
Other details to know
The repayment procedure and interest rates differs based on the bank or lender from whom the policy holder wishes to take out the loan. The interest rates, however, are comparatively lower than those charged by banks for secured loans. They are also considerably lower than rates associated with personal loans.
"Normally, the amount granted by insurers is 85 percent to 90 percent of the surrender value," explains Goel.
First Published: IST