Imagine you need a significant sum of money, but quickly. This could be for multiple reasons such as a child’s marriage, their education, or an unfortunate medical emergency in the family. Well, soon you will be able to easily avail a policy loan across all life insurance savings products The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday (12 June 2024) mandated the facility of a policy loan in all life insurance savings products. The move aims to enable policyholders to meet liquidity requirements. The policy loan feature allows customers to borrow against the surrender value of select life insurance policies, thereby ensuring quick access to funds with minimal paperwork.
In its master circular that consolidates all regulations concerning life insurance policies, the Irdai has also extended the free look period to 30 days as against 15 days earlier. The free look period provides time for customers to review the policy terms and conditions.
Loan Against Life Insurance Policy
When faced with a situation to gather money for an emergency, most people tend to go for personal loans, borrow from friends and family, gold loans, or sometimes property collateral for funds. For the unversed, a loan against your life insurance policy is also a credible approach to meet such sudden needs.
How does it work?
Though the primary objective of a life insurance policy is providing the insurer with risk coverage against health-related matters, or benefits to the nominee in the event of death, however, these policies also come with many other benefits.
The policyholders can get a loan when offered a life insurance policy as collateral.
The application process for such a loan varies from company to company - based on the facility they extend. To apply for a policy loan, the policyholder should contact their insurance agent to enquire about the process, and other important details like the Surrender Value, terms and conditions related to this, etc.
This Is What You Should Keep In Mind
Required Documents: While applying for a policy loan, you will need three basic documents (in addition to any other papers mentioned by the insurer). These are the loan application form, original life insurance policy, and signed agreement between the insurer and the insured.
Surrender Value: Usually, these loans are granted against the surrender value of traditional policies. Surrender Value refers to the amount policyholders will receive if they choose to terminate a policy before its maturity.
Interest Rate: The policyholders have to pay interest on the policy loan. However, the loan against policy service circumvents the lengthy loan procurement process and mostly has lower interest rates than a personal loan. It is important to note that the interest rates for the loan will vary according to the ongoing interest rates for your policy.
How much can you burrow?
The loan amount that you can get against your policy depends on the Surrender Value that your life insurance plan has acquired to date. As per BankBazaar.com, banks and insurance companies will not offer you a loan on the entire Surrender Value of your policy. Instead, they would offer you what is a percentage of the policy's Surrender Value.
“The loan amount that you are entitled to borrow will vary between insurance providers and banks. However, you can usually borrow up to a maximum of 90 per cent of the Surrender Value of your policy,” as per information available on BankBazaar.
