What is a Life Insurance Plan?
A life insurance plan can be defined as a contract between you and your insurance provider, where your insurer promises to pay a specific amount of money in exchange for a premium in case of your untimely death or after a specified period.
There are several advantages of taking an LIC policy:
1. Apart from providing your family with the financial buffer, a life insurance can also be an investment choice. There are several life insurance policies that carry minimal investment risk and provide long-term benefits.
2. It acts as a retirement income on maturity. There are several life insurance policies that provide a maturity amount if you outlive the policy – this amount acts like a retirement income.
3. Coverage amount can be increased over time. If at present, you can only afford to pay a low premium, you need not worry. Over time, you can increase your insurance cover by paying slightly higher premiums for better coverage, as your income increases.
4. The lump sum payable on death is exempted from taxes. As your income increases so do the tax bracket. Opting for a life insurance plan could also mean saving on tax, as the lump sum payable is exempted from taxes.
5. It also comes with another benefit – you can avail a loan against your LIC policy.
What is Loan Against LIC Policy?
If you choose an LIC policy that is of endowment type, then you would be allowed to take a loan against your policy should you require urgent funds. It is clearly mentioned in the policy agreement whether a particular policy is with or without loan facility.
There are two ways you can repay your loan
• You can repay the loan with interest, or,
• Continue paying the interest and allow the principal loan amount to be deducted at the time of the claim payments
The maximum loan amount available under this scheme is the policy is 90% of the Surrender Value of the policy
In case of paid up policies, it is 85% of the surrender value
The interest rate is based on the number of premiums that have been paid. The more the number of premiums paid, the lower the interest rate. The base rate is declared by the Corporation every year and they are plan specific. Interest on this loan scheme is payable on a half yearly basis.