Life insurance is not just about financial protection for your family; it can also act as a financial backup during emergencies. Many policyholders are unaware that they can access funds without surrendering their policy. If you are wondering How to Take a Loan on Your LIC Policy, this detailed guide will help you understand the eligibility, process, interest rates, repayment rules, and important precautions before applying.

Policy loans are a convenient way to meet urgent expenses such as medical bills, business needs, education costs, or personal financial crunch without disturbing long-term financial planning.

What is a Loan Against LIC Policy?

A loan against LIC policy is a facility offered by the Life Insurance Corporation of India that allows policyholders to borrow money against the surrender value of their eligible life insurance policy. Instead of surrendering the policy and losing coverage, you can use it as collateral and continue enjoying life cover benefits.

This type of loan is generally available on traditional policies such as endowment plans, whole life plans, and money-back policies that have acquired a surrender value.

Eligibility Criteria to Take a Loan on LIC Policy

Before applying for a loan, make sure your policy fulfills the following conditions:

• The policy must have acquired surrender value (usually after paying premiums for at least 2–3 years).

• Only certain traditional plans are eligible.

• The policy must be in-force or paid-up condition.

• The policyholder must submit a loan application form with required documents.

Term insurance plans do not offer loan facilities because they do not accumulate surrender value.

How Much Loan Can You Get?

The loan amount depends on the surrender value of the policy. Generally:

• Up to 90% of surrender value (for in-force policies)

• Up to 80%–85% of surrender value (for paid-up policies)

The exact percentage may vary based on LIC’s current loan policies and type of plan.

Step-by-Step Process: How to Take a Loan on Your LIC Policy

Here is the complete procedure to apply for a policy loan:

1. Check Policy Eligibility

Verify whether your policy has acquired surrender value. You can check this through your branch office or LIC customer portal.

2. Calculate Available Loan Amount

Request a surrender value statement to know how much loan you are eligible for.

3. Fill the Loan Application Form

Submit the prescribed loan application form along with:

• Original policy bond

• Identity proof

• Address proof

• NEFT details for loan disbursement

4. Submit Documents at LIC Branch

Visit the nearest LIC branch office and submit the documents. In some cases, online loan requests may also be available for registered users.

5. Loan Approval and Disbursement

Once verified, the loan amount is usually credited to your registered bank account within a few working days.

Interest Rate on LIC Policy Loan

LIC charges interest on the loan amount. The rate is decided by LIC and may change from time to time. Interest is typically compounded half-yearly.

If interest is not paid regularly, it gets added to the principal amount, increasing your outstanding loan.

It is important to check the latest applicable interest rate before applying.

Repayment Rules

One of the biggest advantages of taking a loan against LIC policy is flexible repayment.

• There is no fixed EMI structure.

• You can repay the principal anytime during the policy term.

• Interest must be paid regularly to prevent compounding.

• If the total outstanding (principal + interest) exceeds the surrender value, LIC may foreclose the policy.

If the policyholder dies before loan repayment, the outstanding amount is deducted from the claim amount payable to nominees.

Advantages of Taking Loan on LIC Policy

Here are the major benefits:

1. Quick Processing

Loan approval is generally faster compared to bank loans.

2. Minimal Documentation

Since the policy itself acts as collateral, paperwork is limited.

3. Lower Interest Rates

Interest rates are usually lower than personal loans or credit cards.

4. No Credit Score Impact

Loan approval does not heavily depend on your credit score.

5. Continued Life Cover

You continue to enjoy insurance coverage while availing the loan.

Things to Consider Before Applying

While policy loans are convenient, you should keep the following points in mind:

• Non-payment of interest may reduce policy benefits.

• Long-term unpaid loans can lead to policy lapse.

• Maturity amount will be reduced by outstanding loan and interest.

• Loan facility is not available for term insurance plans.

Make sure you compare the loan cost with other borrowing options before making a decision.

When Should You Take a Loan Against LIC Policy?

Taking a loan against LIC policy can be useful in the following situations:

• Short-term financial emergency

• Medical expenses

• Temporary business cash flow needs

• Education fees

• Avoiding high-interest personal loans

However, it should not be treated as a long-term financing option.

Frequently Asked Questions (FAQs)

Q1. How to take a loan on your LIC policy online?
You can log in to your LIC customer portal, check loan eligibility, and submit an online loan request if your policy is registered for online services. Alternatively, you can visit your nearest LIC branch.

Q2. What is the minimum period required to take a loan on LIC policy?
The policy must acquire surrender value, which generally happens after paying premiums for at least 2–3 years.

Q3. Can I take a loan on a term insurance policy?
No, term insurance policies do not have surrender value, so loan facility is not available.

Q4. What happens if I don’t repay the LIC policy loan?
If the outstanding loan and interest exceed the surrender value, LIC may foreclose the policy. In case of death, the loan amount is deducted from the claim settlement.

Q5. Does taking a loan affect maturity benefits?
Yes, the outstanding principal and interest will be deducted from the maturity amount.

Q6. Can I repay the LIC policy loan early?
Yes, you can repay the principal anytime during the policy term without prepayment penalties.

Conclusion

Understanding How to Take a Loan on Your LIC Policy can help you unlock liquidity without disturbing your long-term financial security. A policy loan is a practical solution during emergencies, offering faster approval, flexible repayment, and continued insurance protection. However, responsible repayment is crucial to protect your policy benefits and avoid financial strain in the future.

For better financial planning and smart insurance decisions, platforms like Square Insurance can guide you in managing policies effectively and choosing the right solutions as per your needs.