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Life Insurance Corporation of India (LIC) has a massive outreach, it is the oldest and the largest insurance company in India. It not only offers variety of insurance plans, it provides loans against its insurance policies as well. The loan is extended by LIC, banks and other NBFCs (Non-banking financial corporation). These are short-term loans which are typically used to cater to expenses of immediate nature. For example, these loans could be used for education expenses, medical expenses, travel expenses or vacation, unexpected emergencies etc.
LIC insurance policies carry a certain stature in the market, it is extremely easy to avail a loan against an LIC policy. Loan against LIC policy is a secured loan, where the policy itself becomes the collateral. On default of the loan, the proceed of the LIC policy will go to the financial institution which has lent the money. These types of loans are risk-free for the financial institution. Since this is a risk free loan, the disbursement is quick and easy.
About Loan Against LIC policy
There are some pre-requisites to avail loan against LIC policy. They are -
Below, we have mentioned the online loan approval and disbursal method followed by lenders while extending loans against LIC policies –
The minimum period for which such loans are extended is 6 months. The loan can be extended up to the maturity of the insurance plan. While most lenders allow pre-closure of the loan, if the loan is closed within the minimum 6-month threshold, there is a need to pay interest up to 6 months as penalty. Unlike other loans where the borrower has to mandatorily pay both principal and interest, these loans allow the borrower to either pay both principal and interest or pay only the interest and the principal will be set off against the maturity value. There is no need to follow a stringent schedule such as the equated monthly installment. The borrower is allowed to pay just the interest for few months and when there is excess cash, the same can be paid to adjust against the principal amount. These types of loan offer ample flexibility with respect to repayment.
The interest rate applicable is as per the lender’s prerogative. The lender declares the interest rate from time to time by aligning them with the market interest rate cycle. Since, this is a secured loan, the interest rate is likely to be lower than that of unsecured loans which fall within the high-risk category for the lender.
There are some key eligibility criteria to avail loan against LIC policy, the same are as stated below.
Loans are not extended against all LIC policies. Loans are available against whole life endowment plans, income plans, endowment plans and unit linked plans that have surrender value. Loan is not available against term plans. The plans which offer loan are – New Jeevan Anand, Jeevan Rakshak, Jeevan Lakshya, Endowment plan, Jeevan Pragati, Jeevan Labh etc. The list may change based on closure or launch of new policies by LIC.
The key features and benefits of loan against LIC policy are as stated below –
This type of loan can be availed with minimal documentation. Since these loans are secure, the loans are approved and disbursed quickly.
There are few advantages of availing loan against LIC policy –
Most other loans offered follow the equated monthly installment schedule. Loan against LIC policy have flexibility in repayment schedule, the borrower can choose to pay only interest or both principal and interest or pay uneven installment.
Rate of interest against LIC policy is lower as compared to other types of loans. Since this is a short term loan and a secured loan, the interest rates are competent.
The loan disbursal is faster since it a loan with collateral. The processing for other types of loans are comparatively lengthy.
The quantum of loan is dependent on surrender value of the policy held. The quantum of loan for unsecured loans is dependent on credit score and income level of the applicant.
Loan against LIC policy can be preferred over availing unsecured loan, since it offers lower interest rate and flexible payment schedule.
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