As of now, whenever you need the Loan Against LIC Policy, then you have to apply it by visiting your service branch. However, now LIC started the online process of applying for Loan Against LIC Policy.
To avail the loan you have to visit the servicing branch and avail the loan by submitting few forms. It is a cumbersome process if the person is not staying in the same locality.
However, recently LIC started the facility to apply or avail Loan Against LIC Policy online. Before jumping into this, let us find out the loan features of LIC policies.
Features of Loan Against LIC Policy
# The maximum loan amount available under the policy is 90% of the Surrender Value of the policy (85% in case of paid up policies) including cash value of the bonus.
# All policies are not eligible for loans (like term life insurance). Hence, you have to check the eligibility of that (usually mentioned in policy bond).
# Interest on the loan is payable half yearly.
# The minimum period for which a loan can be granted is six months from the date of its payment. If repayment of the loan is desired within this period the interest for the minimum period of six months will have to be paid.
# In case the policy becomes a claim either by maturity or death within 6 months from the date of loan interest will be charged only up to the date of maturity/death.
# You repay the loan with interest or continue paying only the interest and allow the loan principal to be deducted at the time of the claim payments.
# To avail loan, you must be paid the premium for at least 3 years.
# You have to assign the policy to LIC as security and they keep the original bond with them.
# If you do not pay interest amount within 30 days from the due date, LIC reserves the right to foreclose the policy and settle the loan amount against the proceeds. However, such foreclosure not applies for fully paid up or for the in force policies.
# The first payment of interest is to be made on the next policy anniversary or on the date of 6 months before the next policy anniversary, whichever is earlier. After that, for every half year, you have to pay the interest.
# You can avail the second loan against the same policy while the first loan has the not been repaid. However, the cap of 90% of Surrender value shall apply to the combined amount.
# You can avail the loan against LIC policy from other banking institutes also (like banks). However, the quantum of loan availability may be less and also they may charger higher interest rate than the LIC.
Loan Against LIC Policy – How to apply and avail online?
As I stated above, recently LIC started the online facility to avail Loan Against LIC Policy. Along with this, you can even repay your interest or principal part of the loan using the online platform.
The steps are here as below.
# Visit the LIC’s Homepage. Click on “Online Loan” tab, which is available under “Online Services”.
# Once you click the tab “Online Loan”, then you will be re-directed to another page. Here, you have two options. One is to repay interest or principal online (both with or without registration) and another is to request for the loan using your login.
As I told above, to request for an online loan, you must be a registered customer of LIC. However, to repay interest and principal, you either can pay with or without login.
Also, in my view, to avail the loan facility online, you must be updated your bank details. If you have updated then the loan amount will be directly credited to your bank account.
Advantages of availing Loan Against LIC Policy
# Quick access in case of emergencies.
# Now with this online facility of the loan facility, I think the process is more simplified than the earlier physical visit to the home branch.
# Interest rate is usually cheaper than your personal loan interest rate.
# Flexibility to repay only interest dues and principal at any point of time but before maturity. This flexibility is not with personal loan.
# You are pledging only policy document as a proof. However, in case of other loans, the loan eligibility depends on your credit score and the asset you pledge.
Disadvantages of availing Loan Against LIC Policy
# Limited to surrender value makes it less worthy when you actually in need of more loan. Because as I said above, the quantum of loan depends on surrender value. This surrender value usually is LESS during the initial years of the policy period. As the policy is about to close, this surrender value increases and so as your loan eligibility also.
# No Tax Benefits while repaying either principal or interest.
# You may end up less insured in case of your untimely death. Because if the loan is pending and the insured died means the nominee will receive the Life Insurance benefits LESS of the existing loan principal and interest.
Conclusion-I am not the fan of LIC traditional plans due to less insurance coverage and less returns for the long run. However, this loan against LIC policy feature will be handy to those who have emergencies. Also, it is best to go for the loan against LIC policy than going for the personal loan.