Loan against insurance is a market segment where several schemes and products are offered by banks and other financial institutions. It is unfortunate that several customers have been falling prey to frauds even in this segment. Loan against insurance policies is something that is availed during a severe financial slump or whenever someone needs money urgently for meeting diverse requirements.

Eligibility Criteria for loan against Insurance Policy:


  • The applicant should be an Indian Resident.
  • Applicant can apply for a loan against your insurance policy, If he has paid premiums for a minimum of three years.
  • The minimum age limit for an applicant is 18 years.
  • The policy should be an endowment policy that has a surrender value. The loan amount is usually 85-90% of the surrender value of the insurance policy.
  • The rate of interest is decided on the premium that has already been paid and the number of total premiums paid till date. The higher these two components, the lower the interest rate.

However, the eligibility criteria is to be kept in mind in this regard. When callers promise fraudulent loans against insurance policies, people often miss out on the fact that they have to be eligible for a loan against their insurance policies. The loan is taken against the surrender value of the insurance policy and this does not apply for term insurance plans. You can apply for a loan against your insurance policy if you have paid your premiums for a minimum of three years.

The loan amount is usually 85-90% of the surrender value of the insurance policy. The rights of the insurance policy are transferred to the financial institution which is the lender in this case and the loan is sanctioned as a result. The rate of interest is decided on the premium that has already been paid and the number of total premiums paid till date. The higher these two components, the lower the interest rate.

The policy holder has to fill up a form and submit the original insurance plan along with signing the deed of assignment which transfers the policy benefits to the lender throughout the duration of the loan. The policy is what works as collateral until repayment of the loan takes place. You have to keep paying premiums even when you take a loan against the insurance policy and should repay at the earliest since the interest will keep getting added to the balance amount irrespective of the fact whether you are repaying the loan. This may lead to the cash value of the policy being surpassed by the loan amount which may lead to the entire policy being terminated and taxes may have to be forked out on the cash value likewise.

In case the loan is not repaid, the amount owed to the lender will be deducted from the surrender value accumulated on the policy and it will lapse thereafter. More and more people are opting for loans on their insurance policies. However, they should understand the product clearly in order to avoid falling prey to fraudulent callers advertising fantastic loan deals on insurance policies. The loan will be a maximum of 90% of the surrender value and 3 premiums must have been paid to be eligible for the surrender value as well.

Many people are receiving calls which are fraudulent and the callers keep promoting schemes where people are promised loans up to Rs. 10 lakhs in case they opt for an insurance policy with a premium amount of Rs. 1 lakhs. The documents will be taken by the company in question and on paper, the scheme looks to be a good one which lures may people into investing. The loan amount is Rs. 10 lakhs and the tenor of the loan will be 10 years with the premium amount being Rs. 1 lakh annually. The maturity proceeds will be taken by the bank along with the bonuses which is often advertised by these callers.

However, customers should beware of such fraudulent callers. Remember that you can only be eligible for a loan against your insurance policy if you have paid premiums for three years and that too between 85-90% of the surrender value. As a result, stick to your insurance company and banks for availing of loans if you need them against your insurance policies. Avoid such fly-by-night operators who will swindle you out of your hard earned money in the name of premium and by wrongly promising you a loan which you will never get thereafter.

It is imperative that you know your insurance rights, and you should also make yourself aware of the norms in the insurance industry. In case you are facing any challenges related to your insurance policy, you can reach out to us. At Insurance Samadhan, we find solutions to all types of insurance-related issues that include lapsed insurance policy, assistance in case settlement, claim recovery in case of insurance fraud, assistance to NRI's in servicing their policies, and much more.