Loan on Life Insurance: Life insurance helps protect individuals and their families from financial risks. If you need any kind of money, you can get a loan on it. However, you have to pledge your life insurance policy. According to experts, only endowment or money back schemes can be pledged. Loan cannot be taken against term plan. At the same time, loans can also be availed from some banks on ULIP schemes.
Once you decide to get a loan against the policy, there are some other criteria that need to be fulfilled. Investors will get the loan amount only if they pay the premium continuously for at least three years. For this reason, if the policy is in force for less than three years, the policy holder cannot avail the loan.
Loan Account and Interest
Check with insurance company for this loan account. Different loan amounts can be availed on the same policy. Generally, insurance companies give a loan of 80 to 90 percent of the surrender value of the policy. If an investor has a policy of Rs 10 lakh and the surrender value is Rs 3 lakh, he will get a loan of Rs 2.4 to 2.7 lakh. Interest is usually between 9 percent and 12 percent.
Very simple documentation
The documentation process to get the loan will be very easy. The form has to be filled by the insurance company and you have to submit the original insurance copy to the insurance company. Apart from this you may be asked for ID and some other proofs.
Premium payment and loan repayment
Once the investor gets the loan, he has to continue paying the premium on the policy against which he has taken the loan. Like every other loan, here too investors have to repay their loan during the policy term. Here the policyholders have the option to pay the principal amount along with the interest amount only. In cases where only interest has been paid, the principal amount will be deducted from the claim amount at the time of settlement.
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