Taking a loan against your policy
Most traditional LIC policies build a value you can borrow against once you have paid premiums for a qualifying period. The policy stays in force, the cover continues, and you repay with interest.
This matters because of what people do instead. Faced with a cash need, many policyholders surrender a policy they have held for a decade, lose the cover, and take a surrender value well below what they paid in — when a loan against the same policy would have solved a temporary problem and left the policy intact.
When this applies
- The policy has acquired a surrender value — generally after a qualifying number of years of premiums
- The plan permits loans; pure term plans generally do not, because they build no surrender value
- The need is temporary and you intend to keep the policy
What is typically required
A starting point, not a definitive list — LIC's exact requirement can vary by branch and by the specifics of your policy. Confirm before you travel.
- The original policy document, which is assigned to LIC as security for the loan
- A loan application form and a deed of assignment
- Identity proof and current bank account details for the payout
- The policy to be in force, with premiums up to date
The order to do it in
- 1Ask LIC or KNATRA for the loan eligibility on your specific policy — it is a percentage of the surrender value, and differs for an in-force policy versus a paid-up one
- 2Submit the loan application with the original policy document
- 3LIC assigns the policy in its favour as security and disburses to your bank account
- 4Pay the interest as it falls due, and repay the principal when you can — the loan can usually run alongside the policy rather than needing immediate repayment
What has to go through LIC directly
The loan is granted by LIC against the policy, and the original policy document has to be lodged with them. KNATRA can establish your eligibility and prepare the application; the disbursement and the assignment are LIC’s own process.
Watch out for
- This is not free money. Interest accrues, and if the loan plus accrued interest ever exceeds the policy’s value, the policy can be foreclosed — you lose the cover and the accumulated value in one step.
- Unpaid loan interest is typically deducted from any claim or maturity payout, so the amount your family eventually receives is reduced by whatever is outstanding.
- Keep paying the policy premiums. A loan does not suspend them, and a policy that lapses while carrying a loan is a much worse position than either problem alone.
Common questions
- How much can I borrow against my LIC policy?
- A percentage of the policy’s surrender value, set by LIC, and lower for a paid-up policy than for one still in force. Because it is calculated on surrender value rather than on premiums paid, the amount available in the early years is small — the borrowing capacity builds up as the policy matures.
- Does taking a loan reduce my life cover?
- The sum assured itself does not change, but any outstanding loan and accrued interest is deducted from what is actually paid out on a claim or at maturity. So the amount your family receives is reduced by the outstanding balance, even though the cover on paper is unchanged.
- Do I have to repay a policy loan by a fixed date?
- Generally there is no fixed repayment date — the loan can run alongside the policy and be settled from the maturity or claim proceeds. What you do have to keep up is the interest. Letting interest accumulate unpaid is what leads to foreclosure.
Related
Need this done rather than explained?
Full servicing assistance — preparing the paperwork, following it up with the branch, and chasing it to completion — is for policies bought or serviced through KNATRA. If your policy is with another agent or was bought directly from LIC, everything on this page still applies to you, and you are welcome to ask for help with a specific case.