When you borrow money from your life insurance policy, the loan should be repaid during the policy term. Here the borrower has the option of paying back only the interest amount or pay back principal along with the interest. If you choose to pay only the interest amount then the principal amount will be subtracted from the settlement amount at the end of policy during settlement.
However if the policyholder chooses to pay only the interest amount, in the event that they die during the loan term, the remaining amount shall be deducted from the sum assured and only the balance will be paid to the nominee.
While your life insurance policy can be used as collateral to secure a loan, we do not recommend it. And, even if you take a loan, make sure to repay the loan (both the principal and interest) as quickly as possible, so that it doesn’t affect the sum assured by your life insurance policy.