Generally an individual can borrow upto 85-90% of the sum assured in a traditional life insurance policy with guaranteed returns. However, note that not all life insurance policies offer loan facilities. Generally, life insurance plans like ULIPs where the returns are market-based do not offer loans. And even if they are provided, the offered loan amount will depend on the current value of the corpus and the type of fund.
When you borrow a loan against your life insurance policy, the lender takes all control of the policy, until you repay the borrowed amount. Interestingly, as the loan amount is not recognized by the income tax department as ‘Taxable’, it is exempted from taxation.
Your credit score and your repaying history will also act as deciding factors in determining the outcome of the loan. Alternatively, a life insurance policy can also act as a collateral in availing a loan separately from the bank.