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Avail loans up to 85% of policy surrender value at cheaper rate Benefits of an insurance policy such as life cover will continue uninterrupted
DID you know that if you are in need of urgent cash, you could take a loan against your insurance policy? Like any loan, you will have to pay regular interest, but the rate would be much lower than those on personal loans, credit card borrowings or loans against gold.
Types of loans: You could get a loan against savings and investment policies, both traditional and unit-linked insurance policies (Ulips) of up to 85 per cent of the surrender value of the policies.
However, insurance companies do not issue loans against term insurance or pure life insurance policies because there are no savings component. In a term plan, premium is charged only against the risks.
Eligibility for these loans: In most cases, one is eligible for a loan only after renewing the policy for three years. Interest charged on loans against insurance policies vary from company to company. At present, most companies charge half-yearly interest of 9 per cent.
A policyholder needs to pay interest along with the regular premium payments.
Conditions: In case you have opted for a loan against an insurance policy, insurance policy benefits, such as life cover will continue uninterrupted.
Get in touch with your insurance company to know if a loan facility is available on your insurance policy. Some insurance companies may not allow a loan on certain insurance schemes, especially for Ulips, where the corpus is invested in equities. Equities are volatile and one cannot be sure about the future value of policies. Fund value may drop substantially if the market tanks. In such cases, the fund value could be lower than the loan value.
If an insurance company provides a loan against Ulips and in the future, the market value of the insurance policy falls and it is lower than the loan, in such cases, the insurance contract is cancelled. In order to raise funds, one can also surrender the insurance policy and avail the surrender value, but it is better to avail a loan against an insurance policy than to terminate the policy.
Loans against an insurance policy will ensure that you can continue to enjoy life insurance coverage.
In the event of the policyholder's demise, the benefits will be paid to your dependents after settling the outstanding loan amount.
If you fail to pay the interest on time, that will be added to the principal and the applicable interest would be calculated.
If the policy matures before paying off the loan, the insurer has the right to deduct the loan amount from your maturity amount.
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