What are the documents i need if seeking a loan on my insurance plan?
You will need to furnish the original life insurance policy and submit the same with the bank or the life insurance company. You will also need to furnish a deed of assignment which ensures that benefits of the insurance policy will be assigned to the bank or insurance company during the loan tenure. Some banks also seek payment receipts of future premiums and a cancelled cheque to complete the documentation for loan against life insurance policy.
Loan against Life Insurance is easily available today and all major insurance companies as well as private and public sector banks are offering it. As the insurance policy is taken as a security here, this loan is cheaper than unsecured loans like Personal Loans.
What are the documents required?
To avail a loan against your policy, you will need to file an application in a pre-prescribed format. You will have to submit the original Life Insurance policy, and sign a deed of assignment stating that the benefits of the insurance policy will be assigned to the bank or insurance company during the loan tenure.
The policy will effectively act as a collateral till the loan amount is repaid. Banks also seek payment receipts of future premiums and a cancelled cheque leaf to complete the documentation for loan against insurance.
How is your loan eligibility decided?
Not all insurance policies are eligible for a loan option. 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. This is because a term plan does not have any cash value associated with it and the plan expires at the end of the term with no returns, unlike other plans. Non-term plans for which the premium has been paid on time for a minimum period of three years are eligible for a loan option.
Loans against insurance is usually offered up to 75% of the paid up value for ULIPs, while it can go up to 90% for traditional plans with guaranteed returns. Unlike Personal Loans, the borrower’s income is not a criterion here for deciding the loan eligibility. However, the credit worthiness of the borrower will be taken into account after checking his Credit Score.
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