Life insurance policies such as endowment and money-back plans allow policyholders to obtain loans. They can borrow up to 80% of the surrender value at an average interest rate of around 9–9.5% per annum. These loans require no credit score, are generally tax-free*, and any unpaid amount is deducted from the maturity benefit. This makes borrowing against your life insurance a quick and flexible way to access funds during emergencies. In this article, let's explore what a loan against a life insurance policy is, how it works, and the key points to consider before taking one.
An insurance policy has become one of the most versatile financial instruments. You can also resort to it for availing a loan facility. When you get a loan by offering your insurance policy as a security, it is a loan against the policy. Here your life insurance policy acts as the collateral, thereby making it a secured loan.
Taking a loan against your life insurance policy is straightforward:
This allows you to access funds when needed while keeping your insurance protection intact.
Availing a loan against a life insurance policy offers the following benefits.
Here are some key things you must know before you opt for a loan against your policy.
Let's see the eligibility criteria for loans against life insurance policies.
Follow the steps below to apply for a loan against insurance policy. Step 1: Start the Application
Click on the ‘Apply’ button available on the lender’s website or portal to begin the process. This allows you to find the online loan application form.
Step 2: Provide Basic Details
Enter your personal information, such as name, date of birth, PAN, and contact number. This helps the lender create your preliminary loan profile.
Step 3: Verify Your Email
Provide your email address and verify it through the link sent to your inbox. This ensures secure and authenticated communication throughout the process.
Step 4: Add Policy Details
Fill in your insurance policy details—like policy number, insurer name, and plan type. These details help determine the surrender value and the eligible loan amount.
Step 5: Get a Personalised Loan Offer
Based on your policy’s value and eligibility, you’ll receive a customised loan offer with the proposed amount and applicable interest rate.
Step 6: Complete KYC Verification
Upload your KYC documents or complete Aadhaar-based e-KYC. This quick verification step helps confirm your identity and address for loan approval.
Step 7: Set Up Auto-Repayment (E-Mandate)
Register an e-mandate to enable automatic EMI payments. This ensures timely repayments without manual tracking.
Step 8: Review and Accept Terms
Go through the loan agreement and repayment terms carefully. Once you accept, the lender prepares your loan for final approval.
Step 9: Submit Your Policy Document
Provide your insurance policy document as collateral. The lender will temporarily assign the policy to secure the loan.
Step 10: Receive Funds After verification, the approved loan amount is credited directly to your bank account within a short time.
To process your loan, you’ll need to provide standard documents that confirm your identity, address, and policy details:
Once all documents are submitted, loan approval typically takes 24-48 hours, and the amount is disbursed shortly after verification.
The table below highlights the key points of comparison to help you make an informed choice:
Loan Against Insurance Policy
Yes (Insurance policy is pledged as security)
No collateral required
Within 24–48 hours depending on the lender
Typically, 2–7 days but varies with providers
No impact on policy benefits if premiums are paid
Usually nil, but some firms may still levy it, depending on the terms and conditions.
May apply depending on lender
A loan against your insurance policy may be a convenient way to access funds, but it’s important to understand a few key points before applying:
Here’s a quick overview of the key highlights of taking a loan against your insurance policy:
A life insurance policy is a flexible financial instrument. It can offer financial funding during times of needs. Having said this, the primary objective of an insurance policy is to financially protect your family in your absence. Hence you must exercise due caution while availing any loan facility in future. Your debt obligation shouldn’t impact the financial security of your family.