Loan Against LIC Policy

loan against lic policy
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A loan against an LIC policy provides a viable financial solution for policyholders seeking to access funds without liquidating their investments. This secured loan option allows individuals to borrow against the surrender value of their life insurance corporation (LIC) policy, typically offering competitive interest rates between 8.50% and 10.50%. With minimal documentation requirements and no credit score checks, eligible policyholders can quickly secure funds for financial needs while maintaining their policy benefits.

What is a Loan Against LIC Policy?

A loan against an LIC policy is a financial option that allows policyholders to borrow money by using their LIC insurance policy as collateral. This type of loan is secured against the surrender value of the policy, enabling individuals to access funds without liquidating their investments. The LIC policy loan typically offers competitive interest rates and flexible repayment terms, making it an attractive choice for urgent financial needs. Unlike a traditional LIC personal loan, it does not require extensive documentation or a credit score check.

Features and Benefits of Loan Against LIC Policy

Taking a loan against your LIC policy comes with several features and benefits that make it an attractive option for policyholders. Below are the key features and benefits associated with loans against LIC policies.

Features of Loan Against LIC Policy

  1. Loan Amount

You can borrow up to 90% of the surrender value of your LIC policy. The exact amount will depend on the type of policy and its current surrender value.

  1. Interest Rates

The LIC loan interest rates are competitive, typically ranging from 8.50% to 10.50% per annum. The interest is calculated on a reducing balance basis, meaning you only pay interest on the outstanding principal.

  1. Repayment Options

The repayment tenure for loans against LIC policies usually ranges from 1 to 5 years. Borrowers can choose flexible repayment options, including monthly EMIs, to suit their financial situation.

  1. No Need for Credit Score

One of the significant advantages is that there is generally no credit score requirement for obtaining a loan against your LIC policy. This makes it accessible for individuals who may have a low credit score.

  1. Quick Disbursement

Loans against LIC policies are known for their quick disbursement process. Once the application is approved, the funds can be disbursed within a short period, often within a few days.

Also, read: How to Get Pre-Approved for a Personal Loan

Benefits of Loan Against LIC Policy

  1. Easy Access to Funds

Policyholders can access funds quickly without the need for extensive documentation or lengthy approval processes.

  1. No Impact on Policy Benefits

Taking a loan against your policy does not affect the insurance coverage. The policy remains active, and the death benefit will still be payable to the nominee.

  1. Flexible Use of Funds

The loan amount can be used for various purposes, such as medical emergencies, education expenses, home renovations, or any other financial needs.

  1. Tax Benefits

The interest paid on the loan may be eligible for tax deductions under certain conditions, making it a financially savvy option.

  1. Zero Prepayment Penalties

LIC usually allows borrowers to repay their loans ahead of schedule without imposing any prepayment penalties, enabling them to settle their debts early without extra charges.

Loan Eligibility Criteria for LIC Policy Loans

When considering a loan against your LIC policy, it’s important to understand the eligibility criteria that policyholders must meet. Below are the key requirements and the types of policies that are eligible for loans:

LIC Loan Eligibility

    • The applicant must be the policyholder of the LIC policy against which the loan is being sought.
    • The policy should have completed a minimum term, typically 3 years or more, to be eligible for a loan.
    • The policy must have a surrender value, which is the amount available for withdrawal. Generally, you can borrow up to 90% of the surrender value of the policy.
    • The policyholder typically needs to be at least 18 years old at the time of application.

Policies Eligible for Loan

    1. Endowment Policies

Loans can be taken against endowment policies, which provide a combination of insurance and savings.

    1. Whole Life Policies

Whole-life policies, which offer coverage for the lifetime of the insured, are also eligible for loans.

    1. Money-Back Policies

Money-back policies that provide periodic payouts during the policy term can be used as collateral for loans.

    1. Term Insurance Policies

Generally, term insurance policies do not have a surrender value and are not eligible for loans.

Documents Required for Loan Against LIC Policy

When applying for a loan against your LIC policy, you will need to provide specific documents to facilitate the application process. Below is a list of the essential documents required for the loan application:

  1. LIC Policy Details
    • Original LIC policy document.
    • Photocopy of the policy document.
    • Surrender value statement (if applicable).
  1. Identity Proof
    • A government-issued photo ID, such as:
    • Aadhar card
    • Passport
    • Voter ID
    • Driver’s license
  1. Proof of Address
    • Recent utility bill (electricity, water, gas)
    • Bank statement
    • Rental agreement
    • Government-issued address proof
  1. 2-3 recent passport-sized photographs.
  2. Income Proof (if applicable):
    • Salary slips for the last 3 months.
    • Bank statements for the last 6 months.
    • Income tax returns (ITR) for the last financial year.
  1. KYC Documents:
    • PAN card
    • Any other relevant identification documents as specified by LIC.

Loan Interest Rates Against LIC Policy

The interest rates for loans against LIC policies typically range from 8.50% to 10.50% per annum, depending on various factors such as the type of policy, the amount of loan, and the tenure.

  1. Loan Tenure

The repayment tenure for loans against LIC policies can vary, but it typically ranges from 1 year to 5 years. The exact tenure may depend on the policy and the amount borrowed.

  1. EMI Payments

Borrowers are required to repay the loan in Equated Monthly Installments (EMIs). The EMI amount will depend on the loan amount, interest rate, and tenure. It’s advisable to use an EMI calculator to estimate your monthly payments based on the loan amount and interest rate.

  1. Prepayment and Foreclosure

LIC allows prepayment of loans, which can help reduce the overall interest burden. However, it’s essential to check if any foreclosure charges apply. Generally, LIC does not charge foreclosure fees, making it easier for borrowers to pay off their loans early.

Also, read: Personal Loan Preclosure Procedure

Step-by-Step Guide to Getting a Loan Against LIC Policy

Individuals can get a step-by-step guide to learn about the online and offline process to get a loan against the policy.

Online Process to Apply for Loan Against LIC Policy

Step 1: Go to the official LIC website, www.licindia.in or download the LIC Mobile App from the Google Play Store or Apple App Store.

Step 2: Login to Your Account:

    • Website:
    • Click on the “Customer Portal” or “Login” option.
    • Enter your User ID and Password. If you don’t have an account, you may need to register first.
    • App:
    • Open the app and tap on the “Login” option.
    • Enter your credentials to access your account.

Step 3: Navigate to the Loan Application Section:

    • Once logged in, look for the “Loan” or “Loan Application” section in the menu.
    • Select the option to apply for a loan against your policy.

Step 4: Fill Out the Loan Application Form:

    • Provide the required details, including your policy number, loan amount requested, and personal information.
    • Review the information for accuracy before proceeding.

Step 5: KYC Verification:

    • You may be required to complete KYC (Know Your Customer) verification.
    • Upload the necessary documents for KYC, such as:
    • Identity Proof (Aadhaar, passport, etc.)
    • Address Proof (utility bill, bank statement, etc.)
    • Income Proof (salary slips, bank statements, etc.)
    • Ensure that all documents are clear and legible.

Step 6: Submit the Application:

    • After filling out the form and completing KYC, review all details.
    • Click on the “Submit” button to send your application for processing.

Step 7:

    • After submission, you will receive an acknowledgment message or email confirming your application.

Offline Process to Apply for LIC Loans

Applying for a loan against your LIC policy can be done conveniently through an offline process by visiting an LIC branch office. Below are the detailed steps to follow, along with the required documents:

  1. Use the LIC website or contact customer service to find the nearest LIC branch office.
  2. Before heading to the branch, ensure you have all the necessary documents ready.
  3. Go to the selected LIC branch during working hours. It’s advisable to visit early in the day to avoid long queues.
  4. Request the loan application form from the customer service desk, or download it from the LIC website and fill it out in advance.
  5. Complete the application form with accurate details, including your policy number, loan amount requested, and personal information.
  6. Hand over the completed application form along with the required documents to the LIC representative at the branch.
  7. After submission, ask for an acknowledgment receipt. This will serve as proof of your application and can be useful for future reference.
  8. Keep track of your application status by following up with the branch or checking online if the facility is available

LIC Loan Interest Rate and Payment Options (New Section)

LIC (Life Insurance Corporation) offers various home loan schemes with competitive interest rates.

General Interest Rates

  • Starting Rate: 8.50% onwards
  • Loan Amount: Rs. 1 lakh to Rs. 15 crore
  • Loan Tenure:
  • Up to 30 years for salaried individuals
  • Up to 25 years for self-employed individuals
  • Processing Fees: 0% – 0.50%
  • Foreclosure Charges: Nil

Specific Loan Types and Their Interest Rates

LIC Griha Suvidha Home Loan:

    • Salaried: 8.85% onwards
    • Self-employed: 8.85% onwards

LIC Home Loan for Pensioners:

    • Salaried: 8.50% onwards
    • Self-employed: 8.60% onwards

LIC Home Renovation Loan:

    • Salaried: 8.50% onwards
    • Self-employed: 8.60% onwards

LIC Home Loan Top-up:

    • 9.70% – 11.55%

LIC Home Extension Loan:

    • Salaried: 8.50% onwards
    • Self-employed: 8.60% onwards

LIC Home Loan for NRIs:

    • Salaried: 8.50% onwards
    • Self-employed: 8.60% onwards

LIC Plot Loan:

    • Salaried: 8.70% onwards
    • Self-employed: 8.80% onwards

LIC Advantage Plus:

    • Salaried: 8.50% onwards
    • Self-employed: 8.60% onwards

How Interest is Calculated

Interest on LIC loans is typically calculated using the following methods:

  1. Simple Interest:
    • Calculates interest on the entire loan principal for the entire tenure, keeping the repayment process straightforward and consistent.
  1. Reducing Balance Method:
    • Interest is calculated on the outstanding principal amount after each EMI payment.
    • This method results in lower interest payments over time as the principal reduces with each instalment.

How to Repay LIC Loan and Pay Interest Online?

Repaying a loan against your LIC policy is a straightforward process, with multiple options available for policyholders. Below, we outline the different repayment methods, focusing on online payments through the LIC portal and offline repayment methods.

Different Repayment Options Available for Policyholders

  • Online Payments: Policyholders can repay their LIC loans and pay interest online through the LIC portal.
  • Offline Payments: Payments can also be made through various offline methods, including bank branches and authorized agents.
  • Auto-Debit: Some policyholders may opt for auto-debit facilities from their bank accounts for regular repayments.

Detailed Steps for Online Payments Through LIC Portal

  • Go to the official LIC website, www.licindia.in.
  • Log into Your Account
  • Click on the “Customer Portal” or “Login” option.
  • Enter your User ID and Password to access your account. If you don’t have an account, you may need to register first.
  • Move to the Loan Repayment Section
  • Once logged in, look for the “Loan” or “Loan Repayment” section in the menu. Select the option to repay your LIC loan or pay interest.
  • Enter Loan Details
  • Input the required details, such as your policy number and loan account number. Review the outstanding loan amount and interest due.
  • Choose Payment Method
  • Select your preferred payment method (e.g., debit card, credit card, net banking). Ensure that you have sufficient funds in your account.

Types of LIC Policies Eligible for Loan Against LIC Policy

When considering a loan against your LIC policy, it’s essential to understand the types of policies that are eligible. Below is a categorized list of LIC policies that can be used as collateral for loans, along with brief explanations of each:

Loan Against LIC Endowment Policies

  1. LIC Bima Jyoti:
    A limited premium paying endowment plan that provides a combination of protection and savings. It offers a lump sum payment at maturity along with life cover.
  2. LIC Jeevan Azad:
    This plan provides financial protection for the family in case of the policyholder’s demise during the policy term, along with a maturity benefit.
  3. LIC New Endowment Plan:
    A traditional endowment plan offers a combination of life cover and savings, providing a lump sum at maturity or in case of death.
  4. LIC New Jeevan Anand:
    This plan combines the benefits of endowment and whole life insurance, offering lifelong coverage along with a maturity benefit.
  5. LIC Jeevan Labh:
    A limited premium paying endowment plan that provides a combination of protection and savings, with a maturity benefit and life cover.
  6. LIC Aadhaar Stambh:
    A plan designed for male policyholders, offering a combination of life cover and savings, with a focus on providing financial security.
  7. LIC Aadhaar Shila:
    Similar to Aadhaar Stambh, this plan is designed for female policyholders, providing life cover and savings benefits.

Loan Against LIC Whole Life Policies

  1. LIC Jeevan Umang

A whole life plan that provides lifelong coverage along with a regular income after a specified period, making it suitable for long-term financial planning.

  1. LIC’s Jeevan Utsav

A whole life insurance plan that offers a combination of protection and savings, providing financial security for the policyholder’s family.

Loan Against LIC Money Back Policies

  1. LIC Dhan Rekha
    A money-back plan that provides periodic payouts during the policy term, along with a life cover, ensuring liquidity and financial security.
  2. LIC Jeevan Tarun
    A plan designed for children, offering money-back benefits at regular intervals along with life cover, ensuring financial support for future needs.
  3. LIC New Bima Bachat
    A money-back plan that provides a combination of savings and protection, offering periodic payouts and a lump sum at maturity.
  4. LIC Jeevan Shiromani
    A plan aimed at high net worth individuals, providing money-back benefits along with life cover, ensuring financial security for the family.

Whole Life Policies

  1. LIC Jeevan Umang
    As mentioned above, this policy provides lifelong coverage and regular income, making it a popular choice for long-term financial planning.

Pension/Savings Plans

  1. LIC Jeevan Dhara II

LIC Jeevan Dhara II is a non-linked, non-participating immediate annuity plan designed to provide a steady income stream during retirement. Launched on January 22, 2023, this plan allows policyholders to choose from 11 different annuity options, ensuring flexibility to meet individual financial needs. The minimum entry age for this plan is 20 years, making it accessible for younger individuals planning for their future. The annuity payments begin immediately after the policy is purchased, providing financial security and peace of mind to retirees.

  1. LIC Saral Pension

LIC Saral Pension is a straightforward and flexible pension plan that offers both single-life and joint-life annuity options. Launched on March 1, 2023, this plan requires a minimum investment of ₹10 lakh as a single premium, ensuring a guaranteed annual pension of ₹58,950 until the policyholder’s death. The plan is designed for individuals aged between 60 and 80 years, making it ideal for those nearing retirement. With minimum annuity options starting from ₹1,000 monthly, LIC Saral Pension provides a reliable source of income, ensuring financial stability during retirement.

  1. LIC Jeevan Akshay – VII

    LIC Jeevan Akshay – VII is an immediate annuity plan that offers a guaranteed income for life, making it a popular choice for retirees. The plan allows policyholders to choose the frequency of pension payments—monthly, quarterly, half-yearly, or yearly—based on their financial needs. The minimum premium amount varies depending on the chosen annuity option, providing investment flexibility. Available for individuals aged 30 years and above, this plan is designed to cater to a wide range of retirement planning needs.

  2. LIC’s New Jeevan Shanti

LIC’s New Jeevan Shanti is another immediate annuity plan that offers policyholders the option to choose between single-life and joint-life annuity options. This plan provides a secure income stream during retirement, with the flexibility to select the frequency of annuity payments. Available for individuals aged 30 years and above, LIC’s New Jeevan Shanti is designed to provide financial security and peace of mind, ensuring that retirees can enjoy their golden years without financial worries.

What Loan Amount Can You Borrow Against LIC Policy?

When considering a loan against an LIC policy, the amount you can borrow is primarily determined by the surrender value of the policy. Understanding this concept is crucial for determining how much loan you can secure.

Surrender Value is the amount that the policyholder receives if they choose to terminate the policy before its maturity date. The surrender value is calculated based on the premiums paid, the duration for which the policy has been active, and any bonuses accrued. It is important to note that the surrender value is typically lower than the total premiums paid, especially in the early years of the policy.

When you take a loan against your LIC policy, you can generally borrow up to 90% of the surrender value. This percentage can vary based on the specific terms of the policy and the insurer’s guidelines.

If your LIC policy has a surrender value of ₹1,00,000, you could potentially borrow up to ₹90,000 against it.

Here are key variations of LIC Policies:

  • Endowment Policies: These policies usually have a higher surrender value due to their savings component. Borrowing against these policies can yield a higher loan amount, often up to 90% of the surrender value.
  • Whole Life Policies: These policies also accumulate cash value over time, allowing for loans against them. The loan amount can be similar to that of endowment policies, depending on the surrender value.
  • Term Insurance Policies: Typically, term insurance policies do not have a surrender value, as they are pure risk cover without any savings component. Therefore, loans against term policies are generally not available.
  • ULIPs (Unit Linked Insurance Plans): The surrender value of ULIPs can fluctuate based on market performance. The loan amount can be up to 80-90% of the surrender value, depending on the policy’s terms and the duration it has been held.

Advantages of Taking Loan Against LIC Policy Over Personal Loans

  1. Lower Interest Rates

Loans against LIC policies typically come with significantly lower interest rates compared to personal loans. While personal loans can have interest rates ranging from 13% to 25%, LIC policy loans often have rates around 8% to 10%. This makes them a more cost-effective option for borrowers looking to minimize interest expenses.

  1. No Credit History Required

One of the standout features of LIC policy loans is that they do not require a credit history for approval. This makes them particularly advantageous for individuals who may not have an established credit score or those who have faced challenges in the past. The loan is secured against the cash value of the policy, simplifying the approval process.

  1. Continued Life Cover

When you take a loan against your LIC policy, the insurance coverage remains active. This means that in the event of an unforeseen circumstance, the policyholder’s beneficiaries will still receive the death benefit, minus the outstanding loan amount. This feature provides peace of mind, ensuring that loved ones are protected even while accessing funds.

  1. Flexible Repayment Terms

Loans against LIC policies offer flexible repayment terms that can be tailored based on the policy tenure. Borrowers can choose to repay the loan at their convenience, which can be particularly beneficial for those with fluctuating income or financial commitments. Unlike personal loans, which often have rigid repayment schedules, LIC loans allow for more personalized repayment plans.

Alternatives to Loan Against LIC Policy

When considering alternatives to a loan against a LIC policy, personal loans, and gold loans are two prominent options:

LIC Policy Loan vs Personal Loan:

  • Interest Rates: Loans against LIC policies typically have lower interest rates compared to personal loans, which can range from 13-15%. This makes LIC loans more cost-effective for borrowers.
  • Collateral Requirement: A personal loan is unsecured, meaning no collateral is required, but this often results in higher interest rates. In contrast, an LIC policy loan is secured by the cash value of the policy, making it easier to obtain and often at a lower rate.
  • Repayment Flexibility: LIC loans offer flexible repayment terms, allowing borrowers to set their own repayment schedules without penalties for late payments. Personal loans, however, have fixed repayment terms and schedules.
  • Impact on Credit Score: Loans against LIC policies do not affect your credit score, regardless of repayment status. Personal loans, being unsecured, can impact your credit score if payments are missed.

Gold Loans and Other Secured Loans

  • Gold Loans: These loans are secured by gold and typically offer lower interest rates than personal loans. However, they require physical gold as collateral, which may not be feasible for everyone.
  • Other Secured Loans: Loans secured against property or other assets can also provide lower interest rates. However, they often involve lengthy approval processes and significant documentation.

FAQs on Loan Against LIC Policy (New Section)

Can I take a loan against my LIC policy if it’s in the grace period?

No. You cannot take a loan against your LIC policy if it’s in the grace period. A policy is eligible for a loan only after it has been in force for a minimum period and premiums have been paid regularly.

What happens if I default on my LIC policy loan repayment?

Defaulting on a LIC policy loan can lead to the policy lapsing. This means the policy will terminate, and you will lose all benefits, including the surrender value.

Is it possible to prepay the LIC loan before the tenure ends?

Yes, you can usually prepay your LIC policy loan before the end of the tenure. However, there may be prepayment charges applicable, which vary depending on the policy and loan terms.

How is the interest calculated on LIC policy loans?

Interest on LIC policy loans is typically calculated on a monthly basis. The interest rate is usually fixed and applied to the outstanding loan balance.

Can I get a loan on my LIC policy after maturity?

No, you cannot get a loan on your LIC policy after it matures. Once a policy matures, the sum assured and any accumulated bonuses are paid out to the policyholder, and the policy ceases to exist.

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