When to Borrow a Loan Against a Life Insurance Policy?


You may have availed a life insurance policy to protect yourself and your loved ones against monetary losses in eventualities like death, an accident, loss of income due to a disability, etc. However, you can use your insurance policy to raise finance in situations apart from the ones listed in your policy.

Whether it is funding a new business premise, investing in a vacation home or bridging a short-term financial need, a loan against life insurance policy can help you sail through such times comfortably.

If you’re looking for cues, here’s a list of scenarios when a loan against a life insurance policy is most handy.

When you need finance immediately.

You can avail a loan against a life insurance policy to enjoy quick finance as soon as you need it. So, if you need to pay for your child’s overseas education by a deadline, renovate your home after a natural calamity or fix your car after unseasonal flooding, you won’t have to wait too long for the money as you get disbursal within 72 hours. Likewise, you can also avail this loan when you wish to invest in a lucrative project but don’t have the liquidity that you need.

When you need working capital

Every business needs working capital to function smoothly. In such a situation where you cash outflow is greater than inflow, you can bridge the gap by taking a loan against the life insurance policy. This is useful when you have delayed payments from clients, for example, but need to buy raw materials, pay your suppliers as well as overhead costs, regardless of your income. It will give you immediate access to a high loan amount at a low-interest rate, especially when compared to a personal loan.

When you need to pay for unplanned medical treatment

With medical inflation increasing at 15% year-on-year, it is necessary to avail adequate health insurance for yourself and your loved ones. However, at times your health insurance policy may not be sufficient to cover the cost of treatment. In such cases, you can avail a loan against an insurance policy to enjoy quick approval and access a significant loan amount.

While a loan against life insurance policy can come to your aid immediately, like all loans, it is best to be informed about a few pointers before you apply for one. Take a look at what they are.

Take the loan only if you are capable of repaying it

This policy is sanctioned for a short tenor, usually for up to a year. Hence before you apply for the loan against insurance policy be sure of your repayment abilities. If you default, you may lose out on policy benefits. Your beneficiaries will be entitled to receive a sum from which the outstanding loan plus interest amount has been deducted.

To avoid this look for lenders such as Bajaj Finserv who offer affordable repayment options. A high-value loan of up to Rs.10 crore with the Loan Against Life Insurance Policy. Here you can make multiple withdrawals from the sanctioned amount based on your needs.

What’s more, you just have to pay interest on the utilized amount and not the entire loan amount, thus lowering your outflow. 

Check for other beneficial features and services that the lender has to offer

Consider availing a loan against an insurance policy from a lender who offers extra features. For instance, Bajaj Finserv offers minimum documentation, online loan management, a dedicated relationship manager and levies nil prepayment and foreclosure charges. This will ensure that your cost of borrowing is low and that you’re getting scores of benefits in exchange for the EMIs you’re paying.

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