Can I opt for a loan on my term life insurance plan?


Can I opt for a loan on my term life insurance plan?


To answer your question in one line, no you cannot opt for a loan against your term insurance plan. However you can get a loan if you have any other life insurance policy along with a term plan. Since a term plan does not have any cash value associated with it is difficult for any bank or NBFC to mortgage the life insurance policy as security and give out any sum against the policy. Life insurance plans like endowment policies, money back plans and unit linked insurance policies (ULIPs) are eligible for loans while term insurance plans are not eligible for any loans. It is always a good idea to check with your bank or life insurance service provider whether any insurance plan you have is eligible for a loan or not.


Hi Preetha,

Loans against insurance policies can only be availed in case one pledges specific traditional policies like money back and endowment policies. Besides having a savings component, these policies also have a life cover component which makes it acceptable to banks. In order to avail a loan on an insurance policy, the policy must acquire a surrender value. The amount sanctioned for the loans is usually 85% to 90% of the policies surrender value.

Apart from LIC, several other life insurers such as Edelweiss Tokio Life and ICICI Prudential Life and many banks including ICICI Bank and the State Bank of India grant loans to customers against insurance policies.

Loans against insurance policies are sanctioned only when traditional policies such as money back and endowment policies are pledged. These policies have life cover in addition to the savings element that make them acceptable to banks. Unit-linked insurance plans and term insurance covers are usually not accepted as collateral.

The policy must be assigned in favour of the insurer, and usually, the amount of money granted by insurance companies is 85% to 90% of the surrender value. The rate of interest charged by LIC is 10% and it has to be paid on a half-yearly basis.

The repayment procedure and interest rates will differ based on the bank or lender from whom you wish to take out the loan. The interest rates, however, are comparatively lower than those charged by banks for secured loans. They are also considerably lower than rates associated with personal loans. LIC provides customers with a choice of making only interest payments, with a provision for the deduction of the loan amount from the claim amount when it is time to settle the loan.

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BB Expert