What Is Loan Against Insurance Policy and Its Eligibility
Loans have saved a lot of people but also plunged many in debt. With high-interest rates and days of application processing, loans make you wait for a long time before the money is credited to your account. But have you heard of a loan against insurance policy? This type of loan can be taken against a certain life insurance policy. Let’s go through what a loan against insurance policy is and its eligibility criteria:
What is Loan Against Insurance Policy?
Loan against life insurance is where you pledge your policy as security and avail a loan against it. The insurance company gives you a loan against insurance policies like endowment plan, money-back insurance, whole life policy and sometimes even Unit-Linked Insurance Plan (ULIP). Such a feature is helpful during a financial emergency as compared to applying for a loan in any other institution. The insurer already has your documents and there is less scrutiny as your policy lies with the company. Here are the eligibility criteria and documents required for availing a loan against life insurance:
To be eligible to avail a loan, you first need to have a life insurance policy to your name. If you do have a policy, then you need to check with your insurer if your policy is eligible for such a loan. A loan can only be taken if your policy has a surrender value. This value is acquired by the insurance policy as time goes by.
Documents Required for Loan Against Insurance Policy:
An application form has to be filled to avail this loan and has to be submitted along with the original life insurance policy document. You can attach a copy of the canceled cheque with a payment receipt. Before you think that loan against insurance policy looks like any other loan out there, let’s go through some of the benefits:
Benefits of Taking Loan Against Life Insurance Policy:
- Quick Disbursement of Loan Amount: With minimal documentation and processing, the loan amount is credited without delay when compared to a personal loan.
- Low-Interest Rates: Interest rates are lower in comparison to other types of loans which makes loan against insurance policy a lucrative option.
- Limited Scrutiny: There is less scrutiny when it comes to this kind of loan, as the insurer has your policy as security for repayment. Your CIBIL score, which is checked by most financial institutions while crediting loans, doesn’t hold good in this case as it is not required.