Saturday, April 7, 2018

Loan Against Insurance – A Quick Insight!



A loan against insurance is not common and widely practiced in India. It’s because most of the insurance policyholders are unaware of the facility that’s available along with their policies.

However, if you are faced with an urgent situation demanding money, you can easily avail a loan against insurance.

In the same context, let’s provide you some insights on loan against insurance.

Apart from providing an insurance cover that any insurance policy offers, it can always be utilized to grab a loan to cover some urgent needs at an aggressive rate of interest.

A loan against insurance policy is on offer by leading banks, non-banking finance companies (NBFCs) and other eligible financial institutes. 


However, you should note that a loan against insurance is not available against Ulips or term insurance policies that put your money in equities or equity-based securities.

The Loan Figures


The maximum amount of loan that an insurance policyholder can avail varies as per the policy types availed and surrender value. A loan against security amount that’s provided is nothing but a proportion of the policy surrender value. 




A loan amount that will be finally dispersed could be as higher as 80% to 90% of the surrender assessment in case of endowment or conventional money back insurance policies.

The Documents


To avail a loan against insurance, a loan application form should be filled by an insurance policyholder. The original insurance policy document should accompany the form. 


What’s more, the payment receipt or the invoice of the loan figure and cancelled cheque copy should also be attached to the loan application.

Assignment Deed


An insurance policy also requires being assigned in favour of the insurance company/lending institution as the case. 


A policyholder needs to execute the assignment deed in a prescribed format. Also, the assignment details are authorized in the policy document as well.

Charges


An insurance company or institution may ask for a minimal loan processing charges for crediting the loan amount in your bank account.


Some Other Points to Note and Ponder


Other than taking into account the above-discussed pointers while seeking a loan against insurance, you should also ensure to consider some below points:

The interest rate on a financial product like a loan against insurance scheme is typically much lesser and affordable as compared to a personal loan.

If you see that the interest due on loan is surpassing or exceeding the surrender value, a policyholder may have to deal with the risk of losing insurance coverage.


The Bottom Line


You just went across some of the major aspects of the loan against insurance so that you may be better prepared for it. A loan against insurance is often an ignored product in India, but you can always make the most of it in urgency and cover your needs. All the best!

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