There are times when one may require funds urgently. Funds may be required to pay for unforeseen medical situations, educational expenses, marriage expenses, purchase of property or even to get out of financial trouble. The first thing one does in this case is to seek help from family and friends. Sometimes, this does not work. Therefore, people try to take a personal loan from banks or financial institutions to tide over the situation. In most cases, the borrower of a personal loan has to provide some kind of security. General public little knows the fact that one can even take a personal loan against LIC insurance policy.
Life Insurance Corporation of India (LIC) allows its policyholders to take a personal loan against their LIC policy. This is a better option as opposed to the traditional personal loan because the rate of interest offered is much less. You just need to have a LIC policy to be eligible for loan against LIC.
Life Insurance Corporation of India permits policyholders to avail a personal loan against their LIC endowment policies. Some of the plans for which one meets the LIC personal loan eligibility criteria include:
- Jeevan Pragati
- Jeevan Labh
- Single Premium Endowment Plan
- New Endowment Plan
- New Jeevan Anand
- Jeevan Rakshak
- Limited Premium Endowment Plan
- Jeevan Lakshya
An LIC policyholder cum borrower can choose to pay the credit taken in one of the two ways:
- First, he or she can simply repay the loan with interest
- Or second, he or she can continue to pay the interest and allow LIC to deduct the loan amount from the payment received at the time of settlement of claim (of the endowment policy)
A personal loan against an LIC endowment policy is also approved if the previous outstanding amount is cleared. Not only does Life Insurance Corporation of India grant a personal loan to its policyholders, but many banks and financial institutions also offer personal loans against LIC policies. In the latter case where the insurance policy has been pledged, the amount of loan is determined according to the value quoted by LIC (on request by the policyholder cum borrower). Thus, a LIC personal loan eligibility criterion is easy to fulfil for nearly everyone as most people have an LIC endowment policy or a bank account, or both.
A loan applicant (policyholder) has to satisfy the below mentioned criteria in order to get a loan against his/her LIC insurance policy:
- The applicant must be a citizen of India or a resident in India
- The minimum age of the loan applicant should be 18 years
- The LIC policy should be in the name of the applicant, i.e. he/she should be the policyholder
- The applicant of the personal loan should have paid the insurance premium of the previous three years in full
Life Insurance Corporation of India gives a loan to an LIC endowment policyholder as per the terms and conditions of the insurance policy. There are, however, a few requirements and conditions that should be met in order to avail a personal loan from the company:
- The insurance policy against which the loan is being taken should be assigned to LIC, i.e. the policyholder or borrower has to transfer all of his or her rights, title and interest to LIC.
- The terms and conditions of the loan are based on the information given in the policy bond document – application of the loan must be made accordingly.
- All LIC life insurance policies do not have a loan facility. Therefore, the policyholder should carefully go through the terms and conditions of his or her policy to check whether it qualifies as a security for a personal loan or not.
- The interest on the personal loan has to be paid semi-annually. The rate of interest on the loan is declared by LIC every year. It is important to note that the interest rate is plan specific.
- The maximum loan amount against the LIC policy equals to 90% of its surrender value (85% in case of paid up policies) including the bonus.
- A personal loan against an LIC life insurance policy is granted for a minimum period of six months. If the policyholder wants to repay the loan within this time frame, he or she will have to pay the interest for six months.
- In the event of claim due to death or maturity of the policy within six months from the date when the personal loan was availed, interest will have to be paid till the date of death or policy maturity.
A policy bond is an important document that contains all the policy terms and conditions including the privileges of the insurance policy. It is given to the policyholder after acceptance of his or her proposal.
LIC personal loan eligibility mandates that this document will be required at the time of taking a personal loan against the policy and even when the policyholder wants to assign the policy. The policy bond has to be pledged to Life Insurance Corporation of India or any bank/financial institution that grants the loan–it acts as collateral and remains in the physical possession of the lender. In such a case, the title of the policy is transferred to the assignee (lender) and the assignor (policyholder) forgoes all rights, title and interest in the policy. The policy is reassigned to the policyholder after he or she repays the loan.
The following advantages are offered to the borrower when he/she takes a personal loan from LIC against his/her endowment policy:
- The rate of interest charged by LIC for a personal loan is considerably less as compared to a personal loan taken from a bank or financial institution. LIC charges approximately 9% interest on the loan, whereas banks and financial institutions charge anywhere between 16-24%. This is why LIC personal loan scores over traditional personal loans.
- LIC does not charge any processing fee. Also, there is no charge for pre-closure of the loan. However, banks and financial institutions charge some money on both these counts.
- LIC does not refer to the CIBIL score of the policyholder while granting a personal loan. Banks and financial institutions always check the credit rating to determine the credit worthiness of the loan applicant. Therefore, it is much easier for first-timers to avail a loan from LIC.