Kolkata: Secured loans can be taken by offering an asset as a collateral to a lending institution like a bank or an NBFC (non-banking financial institution). An insurance policy, especially an endowment policy (and not a ULIP) can be given as a collateral for this purpose but many insurance policyholders are not aware of this facility.
In fact, this is one of the USPs of a life insurance policy — that it can be offered as a collateral to get a loan. If you have a life insurance policy and are looking for a loan, you can use it to get access to loan funds. Here are the details.
Eligibility
The first point to note is that all life insurance policies are not eligible to be pledged as an asset against a loan. Term insurance policies and unit-linked plans cannot be used for this purpose, insurance regulator IRDAI has said. But an endowment plan and such traditional policies or whole life insurance qualifies as an asset for a loan. One can even pledge a life insurance policy to obtain a home loan.
How much loan
Once it is admitted that a policy can be offered as a collateral, the next question is: how much money can one get by pledging a life insurance. The total sum assured is not available as loan. The surrender value of the policy is considered for sanctioning loans. The surrender value of an insurance policy kicks in only when one continuously pay premiums for three years at a minimum. Most lenders sanction 80%-90% of the surrender value of a policy as loan. It should be noted that the surrender value of a life insurance policy is the amount of money that the policyholder will get if the policy is terminated before it matures.
Documents needed for loan against insurance policy
To apply for a loan by pledging an insurance policy as a collateral, one needs to submit the original policy to the lender. The policy should also be assigned in the name of the lender. Once the loan is fully repaid, the insurance policy document would be returned to the policholder. Apart from this, documents such as address proof, identitiy proof and income proof have to be submitted to the lender. These can be PAN, Aadhaar, bank statements, Income Tax Returns etc.
Secured loans are those that can be taken by pledging an asset. An insurance policy can be an asset that can be offered as a collateral to a lender to take a loan. However, not all policies can be offered as collateral. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
