Taking Loan Against Life Insurance policy? Keep these 3 Things in Mind

While having a life insurance policy for yourself and your family permits financial security, you can use it to access funds too. By pledging your life insurance policy as collateral, you can get a loan amount as high as Rs.10 crore from lenders like Bajaj Finserv. You can then use the money to fulfil various needs, be it for your personal needs like your child’s college education, wedding, or home renovation, or to buy business assets and meet other professional needs. With an interest rate that is lower than collateral-free loans and an easy application process, a loan against insurance policy is an option worth considering. Here are 3 things you should keep in mind when thinking of availing a loan against life insurance policy. Nature of the policy that you can pledge Not all life insurance policies can be used to avail a loan against insurance. The specific type of policy that is accepted depends on the lender you choose. For example, Bajaj Finserv accepts only Bajaj Allianz Unit Linked Insurance Policies. This means that during the tenor of the loan, your invested corpus continues to earn markets from the market. Alternately, your life insurance may be a permanent or whole life insurance or term insurance. In such cases, you can get a loan against life insurance from your insurer. So, consider the policy you have and then research lenders to see if your policy is eligible for a loan. Value of the loan against life insurance policy The loan amount you are eligible for depends on various factors such as the surrender value, current corpus, time of buying the policy and premium payment. When it comes to ULIPs, the loan amount depends on the current value of your corpus and the type of funds you have invested in. In such cases, you may get a loan amount of up 50% or more, based on the lender. When it comes to whole life insurance, the loan amount depends on the surrender value and the fact that you have paid the premiums in a timely fashion for a specific period usually of at least 3 years. Repaying a loan against life insurance policy Based on the kind of life insurance policy you have, lenders allow you to repay in different ways. When it comes to Bajaj Finserv’s Loan against Securities, which includes ULIPs, you have up to 12 months to repay the loan. You can repay the nominal interest amount any time during the tenor and the principal at the end of the tenor, or the entire amount at the end of the tenor. You can also make part-prepayments anytime during the tenor without any charges or foreclose the loan at no cost. When it comes to other life insurance policies, you can get a longer tenor, up to the tenor covered by the policy. In such cases, you can pay the interest regularly along with the principal or without the principal. If you don’t pay the principal, when the policy comes to an end, the balance loan amount will be adjusted with the claim amount and paid back to the policyholder. In case the policyholder dies during the tenor, the same settlement amount is repaid to the nominee. Documents needed and eligibility criteria for Loan against Insurance The eligibility criteria for loan against insurance policy is usually easy and simple. Usually, lenders require you to be an Indian citizen of at least 21 years of age and with a regular income, no matter whether you are salaried or self-employed. Here’s the list of documents that you need to submit: For an Individual borrower

• Pan card
• Aadhar card
• One cancelled cheque/bank statement

For a Company borrower

• MOA / AOA
• List of Directors
• Shareholding Patte
• Board resolution
• Pan Card & Address proof of company & director
• Cancelled Cheque/ Bank Statement

Now that you know what to take notice of when you plan to borrow a loan against life insurance, you can take the right call when you are in the need of funds.