We take a life insurance policy to ensure the financial well being of our family, in case of sudden death. Typically life insurance policies are long term and breaking the policy can cost heavily. In case of a sudden requirement of cash, instead of breaking the policy, one can get a loan against the life insurance policy.
A loan against a life insurance policy is a secured and short-term loan, that offers lower interest rates as compared to a personal loan. Being secured in nature, most banks process the loan faster and offer attractive interest rates.
While some banks offer a high amount, typically the loan amount is a predefined percentage of the policy’s surrender value. Since insurances are of higher values, the loan against insurance policy can be used to borrow a substantial amount, sometimes up to Rs.10 crore in specific cases.
However, not all unit-linked policies have loan facilities, each bank has its own policies, one should check with specific banks before finalizing to take a loan against the insurance policy.
A loan against a life insurance policy can be an ideal financing option in case one needs a lump sum amount urgently and cannot wait to liquidate any other investments like real estate etc. Getting a loan against an insurance policy is quick and hassle-free, in most cases, the approval takes place with within a few hours, with limited documentation. The tenure of payback varies from bank to bank but averages around one year.