Life Insurance Corporation of India (LIC) provides secured personal loans using its life insurance policies as collateral. This loan commonly known as loan against LIC policy have flexible-end use with competitive interest rates that can be used by the borrower to deal with various expenses. Loan against insurance policy requires the borrower to submit the insurance policy with the lender as collateral. If the borrower is unable to pay back the loan, then the lender reserves the right to hold on to the policy till the debt is cleared by the borrower.
Documents required for LIC Loan
To get a LIC Loan, you need to submit the following documents:
- LIC policy
- Identity Proof: Aadhaar Card, Voter ID Card, Passport
- Address Proof: Aadhaar Card, Voter ID Card, Driving License, Utility Bills
- Proof of income: Salary Slips, Bank Account Statement
- Deed of assignment
LIC Loan Interest Rate
The current LIC policy loan interest rate is in the range of 10-12%. Given that the loan taken against the policy is secured by the LIC policy itself, interest rates on such loans are quite low and hence, make them an attractive personal loan option. Loans on LIC policy can be availed from LIC or other leading banks such as SBI, Axis Bank, Bank of India and others. The rate of interest on policy loans can vary from bank to bank. Check out the following table to get more information.
|Bank/NBFC/HFC||Interest Rate (%)|
|Life Insurance Corporation of India||As per individual applicant profile|
|LIC Housing Finance||14.80 onwards|
|Axis Bank||10.50 onwards|
|Bajaj Finserv||12.99 onwards|
|Kotak Mahindra Bank||10.99 onwards|
Loan on LIC Policy Features and Benefits
You can get following features and benefits on LIC Loan:
- Purpose: This loan can be availed to meet your urgent personal expenses. These may be for unforeseen medical situations, educational, marriage expenses, or simply for getting out of the financial crisis.
- Loan Amount: LIC loan can be availed up to 90% of the surrender value.
- Loan Tenure: A minimum of 6 months has to be served as tenure for a LIC Loan.
- Interest rates: LIC policy loan interest rates are in the range of 10% – 12%.
- Termination: LIC can terminate the policy in case the total amount of debt reaches more than the surrender value. LIC also holds the leverage of deducting the loan amount from the maturity amount if the policy matures before the completion of loan repayment.
- The demise of the policyholder: If it so happens that the policyholder dies during the tenure of the loan, LIC will deduct the interest and outstanding loan amount from the amount of claim settlement.
The following are some key eligibility criteria for those opting for a loan against LIC policy:
- The applicant should be a resident of India and at least 18 years old
- The applicant must have a valid LIC (or other life insurance) policy
- The LIC policy used for obtaining loan has guaranteed surrender value (term plans not eligible)
- At least 3 years of LIC premium has to be paid in full
- The policy has to be assigned completely in favour of LIC
Type of Policy
Life Insurance Corporation of India typically allows personal loan against LIC endowment policies as per conditions specified in the policy bond. Some of the popular LIC policies on which loan can be taken are:
- Jeevan Pragati
- Jeevan Labh
- Single-Premium Endowment Plan
- New Endowment Plan
- New Jeevan Anand
- Jeevan Rakshak
- Limited Premium Endowment Plan
- Jeevan Lakshya
Loan Repayment Schedule
The minimum tenure for which a loan against LIC policy is granted is 6 months. Even if a longer tenure loan is prepaid, the minimum period following which pre-payment can be made is 6 months. The complete loan repayment schedule is provided to the borrower at the time of the loan being sanctioned and the same can be obtained online in the LIC eServices portal.
In case of policy maturity/borrower’s death prior to completion of the 6 month period, the policy proceeds will be used to settle the loan and interest will be charged only for the period the loan was outstanding.
You can follow the following procedures to repay the loan:
- Pay interest along with the principal
- Pay interest for a few years and repay the principal when you have excess cash
- Pay only the interest and principal amount can be settled with the claim amount on maturity
Terms and Conditions
The following are some of the key terms and conditions related to loan against life insurance policy issued by LIC:
- The minimum tenure for a loan against LIC policy is 6 months
- Applicant will have to pay at least 6 EMIs before they can prepay their loan
- In case the policyholder dies, the interest will be calculated till the date of his or her death
- In case the policy matures, then the maturity amount can be used to pay off the remaining loan principal amount
- Only LIC policy holders with endowment plans can avail this loan
Under existing rules, the maximum loan amount that can be sanctioned in case of a loan against LIC policy is up to 90% of the surrender value at the time of the application. In case of paid-up plans, this limit is lower at 85% of the surrender value. In both cases, this is inclusive of the cash bonus that may be applicable to the life insurance policy used as collateral.