What is the eligibility criterion for taking a loan against an endowment policy?
Subodh Gupta, Kolkata
Normally, a loan against a life insurance policy is basically an advance against the cash value of the policy. The surrender value at the time the loan application is made, which is the cash value that is used. The amount of loan granted is always less than the cash value. In an endowment policy, for instance, the loan amount may be up to 90 per cent of the surrender value. The insurance company assigns and holds the policy to secure repayment of the loan. The loan amount needs to be repaid before the maturity of the policy.
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In case the total amount of advance against the policy becomes more than its surrender value at any time, the insurance company has the right to terminate the policy after giving one month’s notice to the policyholder. This is commonly called foreclosure. If the policyholder dies and a claim arises, the insurer is entitled to deduct the balance amount of the loan with interest from the policy money due.
