You can get a loan by mortgaging LIC policy

K ARAVIND

Banks offer personal loans, especially with no collateral. Therefore, the interest rates on such unsecured loans are very high. At the same time, life insurance companies, including LIC, offer personal loans as a fixed percentage of the surrender value of insurance policies.

The interest rates on such secured loans are lower than the interest rates on bank personal loans and bank loans on the security of insurance policies. This is one of the reasons why LIC stands with banks in providing personal loans.

Loans are available only those who have endowment policies and moneyback policies. Loans are not guaranteed on term policies that do not have a surrender value or on ULIPs that fluctuate in value of the investment due to fluctuations in the stock market.

The loan is available only after a certain number of years after taking out the policy. If the policy is terminated before the end of the term, the loan holder will receive 85-90 per cent of the surrender value.

Flexible conditions have been devised for the repayment of LIC loan amount and interest. Policyholders can apply interest free repayment every year by deducting the loan amount from the amount received at the end of the policy term. At the same time, if such loans are taken from banks, the interest rates and repayment rules vary from bank to bank. The method of deducting the loan amount from the settlement without repaying the loan is very beneficial to the policyholders. Such a loan is a way for policyholders to find money for urgent needs.

The advantage of such loans is that they are easily and quickly available with minimal procedures. There is no problem with loan denial. It is a reliable way of lending to people with low credit score and poor creditworthiness.

At the same time, policyholders should keep in mind that if the loan is not repaid immediately, the nominees will not receive the full benefit of the insurance at the claim stage.

LIC is one of the largest lenders of personal loans in India. It shows the size of the life insurance industry and related financial business in the country.