One may encounter times when there is an urgent requirement for funds. Whether it is to cater for an unforeseen medical bill or to pay for a child’s tuition fees or even to renovate a section of our house, having access to liquidity is paramount.
An option that one can consider is to take a loan against an insurance policy. Mera Kal is here to assist you in getting a loan against your own life insurance policy.
So, let’s understand how this works.
What Is a Loan Against an Insurance Policy?
Using a life insurance policy as collateral to borrow money from a lender is known as a loan against the insurance policy. It means that if you have an insurance policy that contains a savings component, you can get a loan against it, without surrendering the policy. The loan amount is normally a proportion of the policy’s surrender value and you repay gradually, depending on the terms of the loan.
Types of life insurance policies eligible for loan
- Traditional or endowment life insurance policies
- ULIPs
- Pension Plans and Annuities
- Money Back Plans
- Whole Life Plans
Policy loan eligibility – the criteria to keep in mind!
- Policy Term: Your policy has to have been in force for a minimum period.
- Policy Status: Your policy should be active and in effect.
- Age: Anyone above the age of 18 should be eligible, but this could vary as some lenders have an upper age limit.
- Loan-to-Value Ratio: The loan size will depend on the surrender value of your insurance policy.
Loan against insurance benefits
Taking a loan against insurance comes with several advantages:
- Easy: Loans against insurance policies do not require income proof or guarantors like usual bank loans and hence can be processed fast.
- Cheaper than personal loans: The interest rates on these loans are normally lower than the interest rates of personal loans from banks and NBFCs, as these are secured loans.
- Flexible repayment options: You can choose an overdraft rather than a term loan, and only pay the interest each month when you cannot service the principal amount. You can repay the principal amount at your convenience.
- No credit score requirement: As the loan is backed by your policy, you do not require a credit score. In fact, prompt repayments will help build or improve your credit score!
- No effect on insurance coverage: The life coverage stays intact once you borrow on your policy, meaning your family is safeguarded regardless of the loan.
Can I take a loan against insurance? How do I do it?
If you’re asking yourself, “Can I take a loan against insurance?” The answer is a big YES, as long as your policy has a cash value or a surrender value. Generally, policies like whole life, ULIPs, Money Back, annuities and endowment plans allow you to take loans against their cash value.
Now, let’s look at the process of how to get a loan against a life insurance policy.
- Application: Apply for a loan through Mera Kal by providing basic profile details and uploading an image of the policy document.
- Verification: This includes determining the policy’s surrender value (the policy’s worth if it is surrendered today), verifying policy activity, and checking if it has been pledged for other loans.
Want to know the loan amount you may be entitled to right away? You can use our loan against insurance policy eligibility calculator to find out.
- KYC check: If the applicant is to proceed with the loan, the next step is the KYC check. They must provide their identification documents and proof of residence to the lender to verify their identity.
- Loan sanction: Once KYC verified, the loan is approved as per the required loan type (term loan or overdraft), amount and tenure. The applicant is made aware of the repayment schedule and other details.
- Pledging the policy documents: As a next step, the applicant is expected to pledge the life insurance policy to the lender. Mera Kal will assist the applicant with this process which involves signing an assignment form that Mera Kal will submit to the life insurance company, along with the policy document.
- Agreement and Mandate: Once the policy has been assigned to the lender, a loan agreement and mandate requests to auto deduct interest or EMI payments are generated, which require an eSign from the applicant.
- Disbursement: The lender disburses the funds directly into the borrower’s account for a term loan, or, in the case of an overdraft (OD) loan, sets up an account with a maximum withdrawal limit, allowing the borrower to access funds as needed.
By following these steps, anyone can easily go through the process of taking a loan against their insurance policy through Mera Kal.
By following these steps, anyone can easily go through the process of taking a loan against their insurance policy through Mera Kal.
Secure your tomorrow with Mera Kal’s insurance policy loan
A personal loan against insurance policy can be a convenient and flexible way to access liquidity. It is advisable to compare the advantages and possible disadvantages as well as one’s financial situation in order to make a decision. Reach out to Mera Kal for a review of your specific situation and eligibility to help you come to the right decision.
We’re here to help you understand the process of securing a loan against insurance policies issued by various insurance companies including LIC, Kotak Life, SBI Life, Max Life, HDFC Life and ICICI Pru Life.