Can You Avail Loan against Life Insurance Policy?
Life insurance has always been looked upon as an instrument to mitigate the financial risk associated with life. It is the best instrument to pick if you want to provide financial assistance to your loved ones, in your absence. It is the best gift that you can give to your loved ones.
Experts say that life insurance products can also be used for savings. Moreover, insurers market them as savings plans useful to realize distant financial goals. As a result, they are quite popular among investors as instruments that offer double benefit of life cover and savings.
Apart from these two benefits, there is an additional advantage of purchasing these investment plans. This advantage includes the provision of availing a loan against the policy. You can avail loan amounting to 90% of the total surrender value of the policy. The amount of loan availed depends on the types of funds selected in ULIP plans.
Here is how you can go about availing a loan against the policy.
- Fill the loan Application
Only the policy holder is eligible to avail a loan against life insurance policies. For the purpose of borrowing a loan, the policy holder should fill the form and apply.
- Keeping Policy as Collateral
As the policy is kept as collateral, you need to sign an assignment that authorizes the bank to surrender the policy, in case you are unable to repay the loan.
- Know the repayment period
Such borrowings do not carry a flexible tenure. Tenure of the loan is fixed accordingly to the term of the policy. You cannot extend the loan tenure beyond the policy term.
- Value of loan is limited to Surrender Value
As the policy is kept as a collateral, you should understand the fact that the amount to be borrowed will be limited to the surrender value of the policy.