A life insurance policy is a unique financial instrument. It not only helps you secure the future of your family, but also provides a good return on your investment. In addition to this, a life insurance policy can also be used to avail a loan in the event of an emergency. If you’re keen on learning more about taking a loan against your policy, here are some things you need to know.
A life insurance policy is a legally binding contract between an individual and an insurance company. The individual purchasing the policy is required to make periodic premium payments to the insurer. In exchange, the insurer promises death benefits to the beneficiary in case the policyholder dies during the policy’s term. Some life insurance policies also offer the policyholder a lump-sum payment in the form of maturity benefits if the insured person survives the tenure of the policy.
Availing a loan against your existing life insurance policy is a viable alternative to taking out a personal loan or selling your assets for cash. In recent times, loans against life insurance policies are fast becoming the preferred solution to meet e\mergency expenses. This is primarily because it is a hassle-free alternative that offers plenty of advantages over traditional kinds of loans. In addition to being able to quickly avail a loan on your policy, you can also enjoy an interest rate that is much lower than the rate on conventional borrowings. That said, there are some important things you should know before you go ahead and avail a loan on your insurance policy.
This is the first thing that you should determine before trying to avail a loan against your policy. Not all life insurance policies allow you to take a loan against them. Reading the terms and conditions of your policy can give you a fair idea of whether or not you are eligible. If you’re still unsure, it’s advisable to contact your insurance company for more clarity.
Most eligible life insurance policies come with a waiting period during which you cannot avail any loan. Usually, insurance companies allow you to take a loan on your policy only after you pay premiums on time for at least 3 consecutive years. This limitation is put in place, so your policy acquires a cash value before you start borrowing against it.
The amount of loan that you can avail is dependent on the terms and conditions of the policy. Some policies allow you to take a loan on the sum assured, while others permit you to take a loan on the surrender value. Generally, insurance companies only allow you to borrow up to 80% or 90% of the policy amount.
A loan against your life insurance policy is regarded as a borrowing against your own asset. Therefore, you don’t have to subject yourself to any stringent credit assessment or approval processes. These loans don’t affect your credit score and don’t require you to submit proof of your income. Also, as there is no checking or scrutiny involved, a loan against life insurance policy is processed and disbursed much faster.
Only minimal documentation is required to take a loan against your life insurance policy. All you need to do is fill and submit your loan application form along with the original life insurance policy document and an assignment deed that assigns the benefits of the policy to the lender. In addition to these, you might also be asked to submit copies of your identity proof and your address proof.
In case of default in the repayment of the loan, the interest pending on the loan continues to get accumulated. Once the accumulated interest exceeds the cash value of the plan, the lender is forced to terminate the coverage offered by the life insurance policy. Upon termination, the lender deducts an amount equivalent to the extent of default from the surrender value of the policy.
Canara HSBC life insurance offers investors many life insurance plans to choose from. With policies like the Smart Future Income Plan and the Smart Monthly Income Plan, you can enjoy the option of availing a loan against the cash value, so your contingent needs can be met. Once the policy acquires surrender value, you’re eligible to borrow money as per the limits specified. With easy borrowing options such as these available to investors, it’s no wonder that life insurance is an investment you shouldn’t pass over.
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