Harnessing the Value of LIC Policies: A Guide to Loan Acquisition

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Monika Ahuja
Monika Ahuja
I have a specialization in finance but I have written for several domains including real estate, automobile, home decor, e-commerce etc. I worked in sales for over 4 years, before choosing to become a content writer. As a writer, I have worked closely with several national and international brands and have handled their social media and website content for over 3 years. With my diverse experience in the field of writing, I am looking forward to creating some engaging content for my readers.

How to Apply for a Loan Despite a LIC Policy

In the event that the insured passes away, the purpose of a life insurance policy is to provide financial security to the policyholder’s surviving family members. This benefit is offered by a variety of policy types, including whole life, endowment, money-back, term, and unit-linked insurance plans.

Policies with term insurance only pay the insured amount in the case of death. Conversely, whole life, money-back, and endowment plans pay the insured upon maturity or after the insured lives for a certain period of time.

As an illustration:

After 15 years of policy payments and reaching a specific age, such as 50, 60, etc., the repayment may occur. The money back policy’s maturity benefit (sum insured) might be paid in instalments as well. In addition to maturity benefits, in the event of the insured’s death, a lump sum payout equal to the whole insured amount is made.

The largest insurer in India that offers endowment insurance in the form of term plans is Life Insurance Corporation, or LIC. Numerous other private sector insurers, including HDFC Life, and ICICI Prudential, carry out the same function.

Which LIC Policy Type Can I Use to Apply for a Loan?

As previously mentioned, there are two types of life insurance policies: term and surrender value. Nonetheless, the only types of insurance that can be used as security or collateral against a loan are endowment or money-back plans. This is so because, under insurance policies, the whole amount covered is only paid out in the event that the insured passes away. Not all lenders will accept unit-linked insurance policies, which have values correlated with the stock market, as collateral for a loan.

Stated differently, a loan may only be obtained for insurance with a guaranteed surrender value. An insurance policy’s surrender value is the amount due when the policy is surrendered on any date.

A Loan Against LIC Policy: What Is It?

Any loan that is obtained through a LIC insurance can be secured by the policy itself. Until the borrower repays the loan in full, the policy is allocated to the lender. The lender receives all policy benefits in the event that the borrower is unable to repay the loan.

The insured will continue to pay the policy’s premiums as normal, and the life insurance will continue during the loan’s duration.

If the insurance coverage is offered by a private insurer, there is also the option to borrow against it.

Where Can I Apply for a Loan Under a LIC Policy?

One can obtain a loan against a Life Insurance Corporation of India or LIC Housing Finance policy directly from the insurer. Loans on LIC insurance or policies issued by other private insurers are also provided by several banks.

Several banks that permit loans in violation of LIC policy include:

  • Bank Kotak Mahindra
  • Bank Axis.
  • Indian State Bank
  • Bank HDFC

What is the loan amount deducted from the insurance policy in terms of interest?

Depending on the insurance plan, the Life Insurance Corporation of India levies an interest rate between 9 and 10%. On the other hand, banks charge between 10% and 15% for loans secured by insurance policies. However, a lot of banks just provide their account holders with loans, overdrafts, and insurance plans against LIC.

How Can I Apply for a Loan With a LIC Policy?

There are two methods for obtaining a loan secured by an insurance policy or LIC. Depending on whatever method you are most comfortable with, you may apply for a loan through both online and offline methods.

  • Online Loan Application Process for LIC Policies
  • The insurance firms are the only ones that offer an online loan against an insurance policy. Subscribers of LIC have the ability to apply for loans online through its webpage.

The procedure, which is explained below, is rather straightforward.

  • Sign up via the LIC site.
  • Navigate to the Online Services tab.
  • Select the option for an online loan.
  • You may access the Online Policy Options by clicking here.

Applying for a Loan Offline

To apply for a loan offline, you must take the actions listed below.

  • Bring the necessary paperwork, including the policy papers and the KYC documentation proving your identity and residence, to the closest LIC office or bank branch.
  • Sign the necessary application form to obtain the loan details, including the interest rate and loan duration.
  • Ultimately, you receive the loan as an overdraft or in one lump payment.

What is the Maximum Loan Amount Allowed Under the Insurance Policy?

The maximum borrowing amount allowed against an insurance policy is between 70 and 90 percent of the policy’s surrender value.

How Can the Loan Secured by the LIC Policy Be Repaid?

LIC often provides flexible repayment alternatives for loans that violate company policies.The following options are available for loan repayment.

  • In loan EMIs, pay the principle and interest.
  • Only pay interest on a regular basis; principle must be paid when due.
  • Regularly pay interest and balance the principle amount owed on the loan against the advantages of maturity.
  • But if you take out a bank loan, you have to pay it back in equal monthly instalments.

Key Characteristics and Advantages of Using a Loan Against LIC Policy

Before taking out a loan against a LIC insurance, you should be aware of the following significant characteristics and advantages:

  • The interest rate on a loan secured by a LIC policy is lower than that of a credit card (36-48%) or a personal loan (10% and more).
  • A loan obtained against a LIC policy, like a personal loan, can be utilised for any reason that best suits your needs.
  • A credit score would not be necessary in order to take out a loan against a LIC/insurance policy. This may appear to be among the biggest benefits for someone with poor credit.
  • Even after taking out the loan, the policy’s life insurance will remain in effect. In the event that When the insured (borrower) passes away, the amount of the remaining loan balance will be subtracted before the death benefit is paid.
  • A loan secured by an insurance policy can be processed quickly, particularly if the insurer provides it.
  • Taking out this loan results in less of a financial stress because there are several repayment options accessible.
  • It would be challenging to obtain a loan against an insurance policy in the early years of the policy since loans may only be obtained if the policy has accrued a certain surrender value.


In conclusion, if you ever need a loan, utilising your LIC insurance might be a wise choice. It doesn’t require a credit score, has interest rates that are cheaper than other loans, and the life insurance coverage is still in effect. Recall that you may only borrow against policies (such as money-back or endowment plans) that have a surrender value.

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