Having an insurance plan helps protect your family and can also be used as security to get a loan when you need money urgently. Instead of cancelling your policy early and losing its benefits, you can take a loan against it from banks or financial companies. This article explains the easy steps to apply for loan against insurance policy.

Which Insurance Policies Qualify for Getting a Loan?

Before you apply for loan against insurance policy, you must understand which policies are eligible. Not all types of insurance policies can be used for taking a loan. The main qualifying criteria usually include:

• Policy Term: The policy should have been active for at least 3-4 years. Most companies don’t give loans in the first few years.
• Policy Type: Term life insurance plans generally do not qualify for loans. Institutions prefer endowment plans, money-back plans, and Unit Linked Insurance Plans (ULIPs) that build up cash value and have a surrender value.
• Surrender Value: Your policy should have accumulated adequate surrender value to get loan against insurance. High surrender value denotes premiums have been paid diligently.

Thus, choose policies like endowment plans when you also have the objective of utilising the plan for loans during emergencies. Avoid term or group insurance policies for this purpose.

Documents Needed for Insurance Policy Loan Application

When you apply for loan against insurance policy, keep certified copies of these essential documents handy for submission:

• Address Proof (Aadhaar, Voter's ID, Utility Bills)
• Identity Proof (Aadhar, PAN, Driving Licence)
• Passport-size Photographs
• Original Insurance Policy Document
• Insurer Statements of Past 2-3 Years Showing Details of Premium Paid
• Income Proof Documents (Form 16, Salary Slips, Income Tax Returns (ITR))
• Bank Statement of Salary Account for 6 Months

Having these documents ready speeds up the application and approval process for your policy loan. Many institutions also allow online document submission for convenience.

Where Should You Apply for Loan Against Insurance Policy

You can approach lending institutions like banks, non-banking financial companies (NBFCs) and specialised insurance loan providers to avail loan against your insurance policy. Choose an institution that provides loans against insurance plans and submit your application there.

Some key things to consider when applying are:

• Loan amount, interest rates and charges
• Loan approval criteria and documents required
• Flexibility in repayment modes and tenures
• Any pre-closure or foreclosure charges

Discuss your specific requirements with potential lenders before deciding on the most suitable option. Identify lenders providing customised loan offerings against insurance plans.

Step-By-Step Process of Applying for Loan Against Insurance

Follow these key steps for insurance policy loan application:

1. Calculate Loan Eligibility

• The insurance policy loan process starts with contacting your insurer to find out specific details like surrender cash value, eligibility status for a loan, etc., before applying
• This gives clarity on how much loan amount you can expect to get approved against your insurance plan

2. Select Optimal Lender

• Research interest rates and charges applicable on insurance policy loans from various institutions
• Compare all aspects like loan amount sanctioned, interest rate, processing fee, repayment flexibility, etc.
• Select the lender offering a loan against insurance as per your specific requirements and eligibility

3. Submit a Duly Filled Application

• The lender will provide an application form capturing your personal details and insurance policy-related information
• Carefully fill out the detailed application, ensuring all data entered is accurate
• Enclose relevant documents & submit the application online or at the lender's branch

4. Undergo Verification Process

• The processing team verifies all documents submitted for validity and accuracy
• Your insurer is also contacted directly to re-check eligibility status and details
• Any additional documents or clarifications might be requested before approval

5. Receive Final Loan Sanction

• If all verifications are satisfactory, you will receive confirmation of the final loan amount sanctioned
• You will need to submit a signed agreement of loan terms and conditions provided
• The lender disburses the loan directly into your specified bank account swiftly

Thus, by following a structured step-by-step approach, getting a loan against insurance becomes quite straightforward irrespective of which lender you select.

Key Advantages of Taking Loan Against Insurance Policy

Some notable benefits of securing a loan against your insurance plans are:

• No Extra Security Needed: Requires no additional collateral or security on your part
• Simple Process: Has minimal documentation and a quick approval process
• Low Interest Rates: The interest rate is low as the insurance plan serves as a guarantee
• Flexible Repayment: Flexible tenure aligned as per your repayment capability
• Insurance Protected: Maintains insurance coverage and benefits intact
• Ideal for Emergencies: Suitable during temporary cash crunch or unforeseen emergencies

An insurance policy loan can be a practical way to access funds while keeping your insurance cover active, instead of withdrawing or surrendering your policy before maturity. This approach helps meet short-term financial needs more cost-effectively. However, it is recommended to consider your individual circumstances before making a decision.

The Bottom Line

Thinking about taking a loan against your insurance plan is an important part of your financial planning. As you pay premiums and your policy’s cash value grows, you can wisely use this loan for personal or business needs when required. Before you apply for loan against insurance policy, try other borrowing options first. It is best to get advice on the benefits and risks so you can make a balanced decision for both short and long-term goals.

FAQs

1. What types of insurance policies can be used to secure a loan?

Most endowment plans, money-back policies and ULIPs with sizeable cash or surrender value can be used to get a loan. Term insurance plans are generally not eligible.

2. How do I determine the loan amount I can borrow against my policy?

Contact your insurer to know the up-to-date cash/surrender value available before applying for the loan. Typically, 75-90% of this value is sanctioned as loan.

3. What steps do I need to follow to apply for a loan against my insurance policy?

Approach the lender, submit the application form, necessary documents, get the eligibility and loan amount assessed, complete documentation & receive the sanctioned loan into your bank account.

4. What documents are typically required for the application?

Identity proof, address proof, insurer policy documents, premium receipts, income proof, and bank statements reflecting regular premium payments.

5. How long does the application process usually take?

Typically, within a few working days from submitting complete documents, the loan against insurance can be sanctioned and disbursed into your account.

6. What interest rates can I expect when borrowing against my insurance policy?

Interest rates are quite reasonable, typically in the range of 10-15% p.a., as the insurance plan serves as collateral. Processing fees may also apply.

7. Can I continue to pay premiums on my insurance policy while repaying the loan?

Yes, you must continue paying policy premiums on due dates even while repaying the loan via equated monthly instalment (EMI) to ensure benefits are intact.

8. What are some best practices to follow while applying for a loan against an insurance policy?

Select reputed lenders, prepare eligibility documents beforehand, compare interest rates offers, understand applicable charges, and make timely repayments.