Life Insurance not only provides you with life cover, but it also acts as a financial instrument to build a corpus. The benefits don’t end just there; many life insurance policies also help the policyholder to avail a loan. Life insurance companies are making life insurance policies a more flexible financial investment option. Opting a loan against a life insurance policy is also known as pledging, where loan can be issued by the insurance companies itself, or any other financial institutions.
Let’s understand the benefits of opting loan against a life insurance policy.
Benefits of choosing life insurance to get a loan
- Provide Security – Act as collateral. No need to provide any other assets as collateral
- Instant Approval – You get an instant approval for a loan on the surrender value of the policy
- Lower Interest Rates – The interest rates are comparatively lower than a personal loan
- Value Stays Constant – The policy value does not change over time nor with the market, unlike in the case of loan against gold
- Tax Benefits – Since the loan amount is not recognized as income by the Income Tax authorities, it is tax exempted
Let’s see how to avail a loan against their life insurance policy.
Eligibility of Life Insurance Policy
There are various types of life insurance policies, such as Term Life, ULIP, Endowment, Whole Life, Money Back, etc. But not all life insurance policies qualify to avail a loan. For instance, Term Life plans are not qualified to get a loan against the policy as it does not accumulate cash value or surrender value.
In case of another type of policies, one has to ensure and verify that the policy is eligible. If your life insurance policy is eligible, then you can avail loans provided you have paid regular premiums for at least three years. However, some companies may have a criterion of 6 months paid premium instead of 3 years before you can avail a loan.