Loans Against LIC Life Insurance Policies

Introduction

Protecting your loved ones and securing your finances are key reasons to purchase a life insurance policy. But what if your insurance policy could do more than just provide future security in times of financial need? With a loan against your life insurance policy, you can access urgent funds without surrendering the policy or disrupting your financial planning.

At Mera Kal, we help you unlock the potential of your insurance policy, allowing you to retain all the benefits of your life cover while enjoying lower interest rates compared to personal loans or credit cards. This solution empowers you to meet your financial needs while keeping your long-term financial goals intact.

How Does a Loan Against Your LIC Policy Work?

A loan against an LIC policy is essentially a loan taken using the policy’s surrender value as collateral. You will be eligible for a loan once your policy has accrued sufficient value based on the premiums you have paid. The loan amount is typically a percentage of the surrender value and can be used for personal or financial needs.

Available Plans for Loan Collateral

Not all LIC policies are eligible for loans, and each lender could have their own specific sub-set of approved policies. That said, LIC offers a range of life insurance plans that may qualify for loans, provided they have accumulated a surrender value. These include policies taken for your children’s future or your own retirement. Here’s an overview of some popular LIC plans that could be eligible for loans:

At Mera Kal, we make access to credit against your insurance policies seamless, ensuring you get access to the funds you need without forfeiting the insurance benefits you’ve worked hard to secure.

FAQ Section

• What is a loan against LIC policy?

  A loan against an LIC policy is when you use your policy as collateral to avail a loan. This is a completely legal, safe, and easy way to get funds when you need them.

• Are all LIC policies eligible for loan?

  Except for LIC term policies, most other LIC policies are eligible such as LIC ULIPs and LIC endowment plans. You can check your loan eligibility here.

• What is the LIC policy loan interest rate?

  Some LIC policies are eligible for loans directly from the insurer, whilst others can only be pledged to external lenders such as banks or NBFCs. At Mera Kal, we work with multiple lending partners to help you get the best possible deal, with interest rates starting as low as 8% per annum.

• What is the amount that I can avail on my LIC policy loan?

  The loan amount will be dependent on your LIC Life policy surrender value or fund value; you can get anywhere between ₹25,000 to ₹1 Crore.

• What is the tenure for LIC loan?

  There are two options: term loan and overdraft. The tenure of the loan starts from 12 months and goes up to 7 years. This will be dependent on your requirement and your policy eligibility.

• What documents are required for a LIC policy loan?

  You will need your original policy document, KYC documents (PAN card, Aadhaar card), 2 photographs and a signed assignment form. Additional documents may be required based on the loan amount and lender requirements.

• How long does it take to get the LIC policy loan approval?

  Loan timelines can range from 2 to 7 working days and are dependent on LIC's back office for assignment and verification. Disbursement is usually within a day after the assignment confirmation is received.

• What is a surrender value? How can I check the surrender value of LIC policy?

  Surrender value (SV) is the amount that the insurance company pays the policyholder if they decide to terminate the plan before it reaches maturity. The SV is determined by various factors, including the type of policy, premium amount paid, duration for which the policy has been active, term of the policy, bonus accrued and specific terms and conditions of the insurance policy. The delta between the current value of a policy and the SV can often be high, making taking a loan a way to optimize the financial outcomes for the customer.

  SV is usually available after paying 2 full years of premiums.

  You can check your policy's surrender value using our LIC Surrender Value Calculator.

• When does my LIC policy accumulate Surrender Value so I can take a loan?

  LIC policies generally build surrender value after at least 2 full years of premium payments. At that stage, you become eligible to take a loan worth up to 80–90% of the surrender value. In case of single premium policies, or ULIPs, you could be eligible for a loan even sooner.

• When does a LIC policy become eligible for a loan?

  You can take a loan only after your policy has acquired a surrender value which usually happens after 2 full years of premium payment. The more premiums you pay, the higher your surrender value grows, and the more loans you can get.

• How much can I borrow against my LIC policy?

  You can typically borrow up to 80–90% of the surrender value. For example, if your surrender value is ₹2 lakh, you could get a loan of around ₹1.6–1.8 lakh.

• What happens if I surrender my LIC policy after taking a loan?

  Once you take a loan against your LIC policy, the policy is assigned to the lender - which means you cannot surrender it until the loan is fully repaid.

  However, if you default on the loan, the lender has the right to surrender your policy to recover the pending dues. In that case:

  • The loan amount (principal + interest) will be deducted from the policy's surrender value.
  • Any remaining balance will be paid to you.
  • In case the loan dues are higher than your surrender value, you will receive no payout.

• Is my credit score checked before giving a loan on LIC policy?

  No, your credit score is not required. This is a secured loan, as your LIC policy acts as collateral. Lenders do however check against bureau blacklists and watchlists.

• Will my credit score get affected if I take a LIC Policy loan?

  If you repay the interest regularly, it can help build your credit score. However, if you delay or default on payments, it could have a negative impact on your credit report.

• What happens if I stop repaying the loan on my LIC policy?

  If loan repayments stop:

  • The lender can surrender your LIC policy to recover the loan amount.
  • Interest and penalties keep building on the outstanding loan amount.
  • At maturity or death, the insurance payout goes to the lender first to clear dues, and only any remaining balance is paid to your nominee or family.
  • Your credit score will get negatively affected, restricting your ability to access future loans.

  Regular repayments are in your best interest!

• What Happens If I Don't Pay the Premium of my LIC Policy?

  If you stop paying premiums:

  • The policy may lapse, ending your life cover, or go into "PaidUp" status.
  • A lapsed policy reduces your accrued savings.
  • You lose both insurance protection and potential maturity benefits.
  • Loan eligibility gets affected if the policy lapses before taking the loan.

  In order to get a loan against your policy, it is mandatory to have an active policy, as lapsed policies often cannot be pledged.

• How can I check my LIC surrender value and LIC policy loan eligibility?

  Use our LIC Surrender Value Online Checker & LIC Policy Loan Calculator — just enter your policy details and get an instant estimate. It helps you make better decisions before surrendering or taking a loan.

• Can I withdraw from my LIC policy instead of taking a loan?

  Yes, you can, by surrendering your policy or making a partial withdrawal where applicable.

  1. Surrendering Your Policy:

  What is it? Terminating your policy before maturity to receive a "surrender value."

  Implications: You lose your life cover, usually incur a financial loss (surrender value is often less than premiums paid), and forfeit future benefits. This is generally a last resort.

  2. Partial Withdrawal (for eligible plans such as ULIPs):

  What is it? Taking out a portion of your policy's fund value while the policy remains active.

  Implications: Your life cover and/or sum assured will be reduced, and there might be associated charges. This is less drastic than a full surrender.

  Loan vs. Withdrawal - Key Difference:

  • Loan: Your policy remains active, and your life cover continues. You pay interest on the borrowed amount.
  • Withdrawal/Surrender: You either lose your life cover entirely (surrender) or reduce it (partial withdrawal), impacting future benefits.

  You can use our LIC withdrawal calculator to check your LIC policy surrender value.

• Which is better: surrendering or taking a loan against my LIC policy?

  If you surrender:

  • You give up life cover and long-term benefits.
  • Early surrender often leads to low payouts.

  If you take a loan:

  • Your life insurance cover continues, and your maturity benefits stay intact.
  • You can meet urgent financial needs without giving up the policy's long-term value.

  You can use our calculators to check both your estimated surrender value and your eligible loan amount, and compare the two to decide which option works better for you.

  • Surrender Value Calculator
  • Loan Eligibility Calculator