By TBLTeam Many people do not realize that their life insurance policy can also help during financial emergencies. If you have a valid LIC policy, you may be able to take a loan against it instead of applying for a regular personal loan. This option is often preferred because the process is simpler, interest rates may be lower, and there is usually no need for heavy documentation or high credit scores. A loan against LIC policy can help during medical emergencies, education expenses, business needs, weddings, or temporary financial shortages. However, not every LIC policy qualifies for a loan, so understanding the eligibility rules and process is very important before applying.
What Is Loan Against LIC Policy?
A loan against LIC policy is a secured loan where the policyholder borrows money using the insurance policy as collateral.
The lender provides a loan based on:
- Policy surrender value
- Policy type
- Premium payment history
- Policy duration
During the loan period, the policy remains assigned to the lender.
Which LIC Policies Are Eligible for Loan?
Not all policies allow loans.
Generally, loans are available on:
- Traditional endowment plans
- Money-back policies
- Whole life policies
Unit Linked Insurance Plans (ULIPs) and term insurance policies usually do not qualify.
The policy must also acquire surrender value before becoming eligible.
What Is Surrender Value?
Surrender value is the amount the policyholder becomes entitled to after paying premiums for a certain minimum period.
Usually, LIC policies gain surrender value after:
- At least 2–3 years of premium payments
The available loan amount depends mainly on this surrender value.
How Much Loan Can You Get on LIC Policy?
The loan amount depends on the surrender value of the policy.
Generally:
- Up to 80%–90% of surrender value may be available as loan
The exact amount depends on LIC rules and policy conditions.
How to Take Loan on LIC Policy
Visit LIC Branch or Official Portal
You can apply by visiting the nearest branch of Life Insurance Corporation of India or through official online services if available.
Fill Loan Application Form
You need to complete the loan application form with policy and personal details.
Submit Required Documents
Common documents include:
- Original LIC policy document
- Identity proof
- Address proof
- PAN card
- Bank account details
- Passport-size photograph
Policy Assignment
The policy gets assigned to LIC during the loan period as security.
Loan Approval and Disbursal
After verification, the loan amount is credited to your bank account.
The process is usually faster compared to unsecured loans.
Interest Rate on LIC Policy Loan
Interest rates on policy loans are generally lower than personal loans because the loan is secured.
However, rates may change periodically depending on LIC policies and market conditions.
Always verify the latest applicable rate before applying.
Repayment Process
Repayment usually involves:
- Interest payment regularly
- Principal repayment before maturity or closure
Some borrowers choose to repay in installments, while others repay lump sum later.
What Happens If Loan Is Not Repaid?
If the loan remains unpaid:
- Outstanding amount plus interest may be deducted from policy benefits
This may reduce:
- Maturity amount
- Death claim amount
In extreme cases, the policy may lapse if dues become too high.
Benefits of Loan Against LIC Policy
Lower Interest Rates
Rates are often cheaper than unsecured personal loans.
Minimal Documentation
The process is simpler because the policy acts as security.
Faster Approval
Loan processing is usually quicker compared to regular loans.
No Need for High Credit Score
Approval mainly depends on the policy value rather than strong credit history.
Continued Insurance Coverage
In many cases, the policy remains active if premiums continue properly.
Things to Remember Before Taking Loan
1. Continue Paying Premiums
Even after taking the loan, regular premium payment remains important.
2. Check Interest Carefully
Unpaid interest can accumulate over time and reduce final benefits.
3. Borrow Only If Needed
Avoid unnecessary borrowing against long-term insurance savings.
4. Monitor Loan Status Regularly
Keep track of outstanding loan and interest balance.
Is Loan Against LIC Policy Better Than Personal Loan?
For many borrowers, yes.
Loan against LIC policy may offer:
- Lower interest
- Easier approval
- Faster processing
- Less documentation
However, the available amount depends on policy surrender value.
Final Thoughts
Taking a loan against LIC policy can be a useful financial option during emergencies or temporary cash shortages. Since the loan is secured against your policy, approval is usually easier and interest rates may be lower compared to personal loans.
Still, borrowers should understand the repayment terms carefully because unpaid dues can reduce future policy benefits. Always borrow responsibly and maintain regular premium payments to keep the insurance policy active and financially beneficial.
FAQs
Q: Can I get loan on any LIC policy?
A: No, only eligible policies with surrender value qualify for loans.
Q: How much loan can I get on LIC policy?
A: Usually up to 80%–90% of the surrender value depending on policy conditions.
Q: Is CIBIL score required for LIC policy loan?
A: Generally, approval depends more on policy value than credit score.
Q: Can I take loan online on LIC policy?
A: Some services may be available online through official LIC portals.
Q: What happens if I do not repay LIC loan?
A: Outstanding dues and interest may be deducted from maturity or claim benefits.
Q: Is loan against LIC policy cheaper than personal loan?
A: In many cases yes, because it is a secured loan backed by the insurance policy.