Introduction
Did you know that 5 years after purchasing a life insurance policy, 1 in 2 policies have either lapsed or been surrendered? With LIC having about 67% of the life insurance market by volume, this means that half of LIC Policy holders are losing money, rather than building wealth as they set out to!
Don’t be one of them. Make your policy work for you, and help you unlock liquidity whilst growing your long term wealth and enjoying the insurance protection.
Wondering how to do this? Explore Loans against LIC, using your LIC policy as collateral. Policy loans against your LIC policy offer unique advantages such as affordable loans without CIBIL score checks and minimal documentation. This article delves into the intricacies of leveraging loans against LIC policies, providing insights on how to secure a low-interest loan without the need for a credit/ CIBIL score or income proof.
Understanding Loans Against LIC or other Life Insurance Policies
Loans against LIC policies are a financial instrument that allows policyholders to borrow funds against the surrender value of their life insurance policies. The surrender value is the amount available to the policyholder in the case that they choose to surrender the policy before its maturity date. This facility provides a unique opportunity to access liquidity without compromising the insurance coverage. You can find out your surrender value by using our Surrender Value Calculator
Skip CIBIL Score Checks
One of the significant advantages of opting for a loan against LIC is the absence of credit score checks. Unlike traditional loans, which heavily rely on an individual's creditworthiness, loans against LIC are secured by the value of the policy. This makes it an attractive option for individuals who haven’t previously taken formal credit, or those without a substantial credit history.
Alternative Secured Loan
As this is a secured loan as well, it is a great alternative to gold as you don’t need to wear your policy to family functions! It’s also affordable, at 10% per annum interest, which is significantly cheaper than any personal loan options.
No Income Proof Required
Another noteworthy feature of policy loans is that your income is not the primary focus for the lender. Traditional loans often mandate income proof submissions creating hurdles for those with irregular income or those unable to provide the necessary documentation. Loans against life insurance, however, focus on underwriting the asset, widening access for those with irregular and gig income or those in the informal sector as well.
Unlocking Low-Cost Financing
Compared to many other financing options, loans against LIC policies or other policies often come with lower interest rates. Since the loan is secured against the value of the policy, lenders perceive it as a lower-risk transaction. This translates into cost-effective financing for policyholders, making it an attractive choice for those seeking affordable loans.
Steps to Avail Loans Against LIC
Lets introduce you to Shreya, our happy exemplar LIC policy holder. Let’s say Shreya has been contributing monthly to her LIC Policy for many years; let’s see how she can avail this loan:
Step 1: Shreya expresses her desire to take a loan against her LIC policy. She applies for a loan through Mera Kal by uploading an image of her policy document, or providing consent for Mera Kal to pull her policy information from LIC.
Step 2: Now, Mera Kal checks her eligibility – the value of the policy (what it’s worth if you surrender it today), whether it’s still active, and that no other loan has been taken on it. Based on these factors, if eligible, we share the loan amount with Shreya, which is typically 85% of the surrender value of her policy.
- Quick tip: You can use our Mera Kal Surrender Value Calculator right now to find out the loan amount you may be entitled to!
Step 3: If she would like to take the loan, the next step is KYC verification – proof of address and ID so the lender is sure they know who she is.
Step 4: Once Shreya’s KYC is verified, the loan gets sanctioned for the agreed amount and term, and she is made aware of the repayment terms – 2 interest payments each year, and flexible principal payments.
Step 5: Now, Shreya must assign her LIC policy to the lender; to do so she must sign an assignment form and request a witness to do so too, and submit it along with her policy document to complete the process.
Step 6: Once the lender receives the confirmation that the policy has been assigned to them, they will set up a mandate for Shreya’s interest payments, and issue a loan agreement.
Step 7: Once Shreya e-signs the agreement with an OTP, the loan is disbursed to her account!
Conclusion
Loans against LIC policies offer a valuable avenue for those seeking loans without the constraints of a CIBIL score or income proof. With the added benefit of low-cost financing, this financial tool provides a practical solution for individuals looking to unlock liquidity while preserving the security of their life insurance coverage.
As with any financial decision, it is crucial to make informed choices that align with your unique financial circumstances. If you would like advice on what the best product for your context is, check your loan eligibility on our LIC Loan Eligibility Calculator or contact us at hello@merakal.in, and we will be more than happy to assist you.