When you invest in an insurance policy you get cover against financial losses occurring due to accidents, medical treatment or even loss of life. Today, many issuers give you one more benefit. You can use your insurance policy to avail a high-value loan quickly. This is done by pledging your insurance policy as collateral against the amount lent.
So, in the occasion that you have a marriage in the family, a new business venture or even an impending real estate property purchase, you can get all the liquid finance you require by taking a loan against the insurance policy.
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- But first, here are 6 things you need to know about the loan:
- Not all policies can be used as collateral for the loan
- The policy must reach the surrender value before it can be used
- You can benefit from a large loan amount and quick disbursal
- Interest rates are nominal and repayment is convenient
- Eligibility criteria are simple and the loan is subject to a waiting period
- You must pay insurance premiums during the loan tenor
But first, here are 6 things you need to know about the loan:
Not all policies can be used as collateral for the loan
Before you use your insurance policy as collateral to get a loan you must ensure that it meets the required guidelines. While most whole life, money-back and endowment policies will give you this facility, most ULIPs won’t. That said when looking for a policy that accepts ULIPs as collateral consider the Bajaj Finserv Loan Against Insurance Policy.
The policy must reach the surrender value before it can be used
Surrender value is the value of the insurance policy when terminated voluntarily. So, assuming you take an insurance policy that will give you Rs.30 lakh on maturity. If you wish to take a loan against insurance policy of Rs.10 lakh today, you have to make sure that your present surrender value exceeds the desired loan amount. This is because lenders will give you only a percentage of the surrender value as a loan.
You can benefit from a large loan amount and quick disbursal
Since a loan against an insurance policy is a secured loan, lenders are more comfortable with giving you a handsome loan amount quickly. For instance, with the Bajaj Finserv Loan Against Insurance Policy, you benefit from a high-value loan of up to Rs.10 crore, with disbursal within 72 hours of approval.
Interest rates are nominal and repayment is convenient
Another advantage of a secured loan is that lenders are happy to give you affordable interest rates if you have a good credit score. Moreover, the repayment tenor is generally 12 months which is ideal for this short-term loan. That said, you should be sure of inflow of finance in the near future before opting for this loan to make sure you don’t default. Lenders also make repayment easy by allowing you to make pre-payments and foreclose the loan.
Eligibility criteria are simple and the loan is subject to a waiting period
The criteria you must meet to avail this loan are simple and documents required are straightforward too. When applying for a Bajaj Finserv Loan Against Insurance Policy, for example, you need to be a salaried or self-employed resident of India who is at least 21 years of age. Additionally, you need to show proof of regular income and the value of your policy must be at least Rs.10 lakh.
Also, loans cannot be taken against life insurance policies immediately after their purchase. You need to sit out the waiting period before you can use it as collateral, and of course, pay premiums regularly.
You must pay insurance premiums during the loan tenor
Not paying your premiums during the tenor of the loan can put your finances in jeopardy. It can cause your policy to lapse and when there is an absence of security, lenders will recover their money by drawing from the policy’s surrender value.
When looking for a reliable lender to get a loan against an insurance policy, consider Bajaj Finserv. In addition to high-value loans running up to Rs.10 crore, you also benefit from a dedicated relationship manager and cost-effective features like the Flexi Loan facility.