What You Should Know About Taking Out A Loan Against A Life Insurance Policy?
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Among the many kinds of loans available is a loan against your insurance policy. Yes, you read that right. In addition to the wide range of benefits offered by life insurance plans, there is also the option of availing a loan against your policy. Not all life covers come with this feature though, so before you buy your life insurance plan, take some time to go through its benefits and check if it gives you the option of taking out a loan.
What Is A Loan Against Insurance?
A loan against insurance is a facility that allows you to borrow money against your life insurance policy. This is a convenient feature that can help you take care of any emergency financial needs. Here, the value of the policy is considered as the collateral against which the loan is disbursed to you.
What Kind Of Life Insurance Plans Offer The Option To Avail A Loan?
The facility to avail a loan against insurance is not available in all life covers. Typically, you can avail a loan only with traditional policies like money back plans or endowment plans. That said, not all traditional life insurance plans allow you to avail a loan. So, it is best to read through the terms and conditions of the plan you wish to purchase to check if it comes with the loan benefit.
What Are Some Things To Consider Before Availing A Loan Against Your Policy?
Before you avail a loan against your policy, there are some important things that you need to keep in mind. The factors can help you decide if a loan against your insurance plan is the right course of action for you. Here are some such things to keep in mind.
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Eligibility
One of the first things you need to check is whether your policy offers you a loan. And even if it does, you need to verify the waiting period, or the period it takes for your policy to acquire a surrender value. Only after this will you be eligible to take a loan against your plan.
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Loan amount
Another thing to keep in mind is the amount of loan that you can avail. The insurer will typically specify the minimum and maximum amounts of loan you can take against the policy. Keep this in mind before you draw up a financial plan to borrow money against life insurance.
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Rate of interest
The rate of interest charged for loans against insurance plans generally changes from one calendar year to the next. Ensure that you keep track of the interest rates pertaining to the year in which you plan to avail your loan.
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Repayment of the loan
The loan taken against your insurance policy needs to be repaid during the policy tenure. In case of any amount remaining outstanding at the time of the claim, the insurer will generally deduct it from the claim payouts made.
Conclusion
This sums up the basic details about availing a loan against your insurance plan. Keep in mind that it's best to resort to this course of action only in case of any extreme financial need. Availing a loan for inessential purposes only reduces the amount of protection you have during the repayment tenure.
Also read - India's Best Term Plans for 2021
