Loan Against Insurance Policy: All You Need To Know

Our responsibilities in life keep growing as we go through life. Therefore, planning for our financial future becomes an important aspect of our well-being in the future. One of the best ways to build for our financial future is by opting for a life insurance savings plan.

A savings policy offers the dual benefit of insurance coverage and wealth creation. With a money-saving plan, you can achieve your financial goals and protect your loved ones simultaneously. Along with this, the guaranteed saving plan can also help you deal with massive financial expenditures in life.

However, what if you need financial help today? The savings plan can help you build wealth, but it takes a considerable amount of time. Therefore, during such situations, you can rely on your insurance policy to take a loan.

Loan Against Life Insurance Policies

Applying for a loan against your insurance policy is an optimal alternative against taking out a personal loan or selling your assets for cash. In our times, loans against life insurance policies are becoming the preferred solution to meet your emergency expenses. This is because it is a stress-free option that provides many advantages over the traditional process to get loans. In addition, the interest rate for a loan through an insurance plan is lower than the interest rate on the conventional process of purchasing the loan. However, before applying for a loan through your insurance policy, you must learn certain things.

Things You Should Know Before Applying For a Loan on Your Life Insurance Policy

  • Your plan’s eligibility for a loan: You must first check before you decide to get a loan against the policy to ensure your plan is eligible for a loan. Unfortunately, not all insurance policies in the country offer the ability to take a loan against them.

However, many insurers provide this information about the policy on their website. For instance, if you decide to buy the savings plan by TATA AIA, you will find the plan’s loan facility information on their website or policy document. You can also contact your insurer to get the correct information.

  • Waiting period for the loan: Most eligible life insurance plans come with a waiting period in which you cannot apply for a loan.

Generally, insurance companies allow you to apply for a loan on your insurance policy once you have paid the premiums on time for at least three consecutive years. Insurance companies have set this limitation to ensure the insurance plan has acquired a cash value before you begin borrowing an amount against it.

  • Loan amount: The loan amount you can get will depend on the terms and conditions of the insurance plan. Some insurance policies allow you to get a loan on the sum assured, while others allow you to take a loan on the plan’s surrender value. The loans can go up to 85-90% against the policy amount.

Once the loan amount is decided, the policy is assigned to the lender. This means that the policy rights will be transferred to the lender, and the loan is sanctioned to you. Since the loan amount isn’t recognized as income by the Income Tax officials, it will not be taxable.

  • Documents needed: The documentation required for taking a loan against insurance plans is quite low. However, you will have to submit the loan application, the original policy document and the assignment deed which assigns benefits to the bank.

You may also have to submit copies of your identity proof and address proof.

  • Inability to pay back the loan on time: If you default on the loan amount repayment, the interest accumulating will keep rising. Once the accumulated interest exceeds the plan’s cash value, the bank is forced to terminate the coverage by the insurance policy.

After termination, the bank deducts an amount equal to the default amount from the policy’s surrender value.


While we can purchase savings plans to build wealth over time, the returns from the plan will not help us if we need immense financial support during the plan’s tenure. Therefore, we can use the life insurance policy to avail a loan against it for such situations. The loan against an insurance plan can be received faster than the traditional method. It can help us get access to fast funds during emergencies.

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