A loan against LIC policy is a convenient financial solution that allows policyholders to borrow money against the surrender value of their Life Insurance Corporation (LIC) policy. This type of loan provides quick access to funds without the need to liquidate investments or apply for high-interest unsecured loans. Since it falls under the category of loan against securities, it offers lower interest rates and flexible repayment options.
In 2025, as financial institutions continue to streamline lending processes, understanding the eligibility criteria for obtaining a loan against LIC policy is crucial. This guide covers the key requirements, benefits, and factors influencing loan approval.
What is a loan against LIC policy?
A loan against LIC policy is a secured loan where the policyholder pledges their LIC policy as collateral to secure a loan from the insurer or a bank. The loan amount is determined based on the surrender value of the policy, meaning the borrower can access funds without forfeiting their life insurance coverage.
Unlike unsecured loans, a loan against securities such as an LIC policy ensures a lower interest rate, making it an attractive financing option for policyholders in need of liquidity.
Key eligibility criteria for a loan against LIC policy
1. The policy must have a surrender value
Not all LIC policies are eligible for loans. Only policies that have acquired a surrender value can be pledged. Generally, a policy gains surrender value after two to three years of premium payments.
2. The policyholder must be the owner of the LIC policy
The applicant must be the registered policyholder to apply for a loan against LIC policy. Third-party policies or those where the applicant is only a nominee are not eligible.
3. The loan amount depends on the surrender value
The maximum loan against LIC policy amount is generally between 80% and 90% of the surrender value of the policy. This ensures that the loan remains within safe lending limits.
4. Regular premium payments are required
The LIC policy should be active and in force, meaning that all due premiums must be paid on time. Lapsed or inactive policies are not eligible for loans.
5. Certain LIC policies are ineligible
While most traditional endowment and whole life policies qualify, term insurance policies do not have a surrender value and hence do not qualify for loans.
6. Minimum policy tenure required
Most lenders require the policy to have completed at least three years before granting a loan. Policies with shorter tenures may have limited borrowing options.
7. Loan repayment does not affect the policy coverage
Even though the policy is pledged, the insurance coverage continues. However, in case of non-repayment, the insurer may deduct the outstanding loan amount from the maturity benefits or the claim settlement.
Documents required for a loan against LIC policy
To apply for a loan against securities, including an LIC policy, the following documents are typically required:
- Duly filled loan application form
- Original LIC policy document
- Identity proof (Aadhaar card, PAN card, or passport)
- Address proof (Utility bill, voter ID, or driving licence)
- Latest passport-size photographs
- Policy surrender value statement (provided by LIC)
Benefits of a loan against LIC policy
1. Lower interest rates compared to unsecured loans
A loan against LIC policy offers lower interest rates compared to personal loans or credit card debt. The policy acts as security, reducing lending risk for the financial institution. Borrowers can benefit from competitive LIC policy loan interest rates, making it a cost-effective financing option.
2. Quick approval and minimal documentation
Since the loan is secured against an existing LIC policy, approval is faster, and the documentation process is minimal. Many insurers and banks offer instant loan approvals.
3. No impact on policy benefits
The policyholder continues to enjoy life cover benefits even after taking a loan. The loan does not affect maturity proceeds unless the borrower fails to repay.
4. No need for credit score verification
Unlike unsecured loans, where a high credit score is required, a loan against LIC policy does not rely on credit history. Approval is based on the surrender value of the policy.
5. Flexible repayment options
Borrowers can choose to pay only the interest during the loan tenure and repay the principal at maturity, or opt for structured EMI payments.
6. No prepayment penalties
Most insurers and banks do not charge prepayment penalties, allowing borrowers to repay the loan early and save on interest costs.
Loan against LIC policy vs personal loan
| Feature | Loan Against LIC Policy | Personal Loan |
| Collateral required | Yes (LIC policy) | No |
| Interest rate | Lower | Higher |
| Approval time | Faster | Takes longer |
| Credit score requirement | Not required | Required |
| Repayment flexibility | High | Fixed EMI structure |
| Impact on policy benefits | None (if repaid) | Not applicable |
Steps to apply for a loan against LIC policy
Step 1: Check loan eligibility
Verify that your LIC policy meets the lender’s eligibility criteria, including having a surrender value and being active.
Step 2: Gather necessary documents
Collect documents such as policy details, identity proof, and a surrender value statement.
Step 3: Submit the application
Apply through LIC branches, online portals, or authorised banks that offer loans against LIC policies.
Step 4: Loan approval and disbursement
Once the application is processed, the loan amount is credited to the borrower’s account within a few hours to a few days.
Things to consider before taking a loan against LIC policy
- Interest accumulation – Even though interest rates are lower than personal loans, interest accrues until full repayment.
- Impact of non-repayment – Failure to repay the loan may lead to deduction from policy maturity benefits.
- Comparing lenders – While LIC offers direct loans, some banks also provide loans against LIC policies with competitive interest rates.
Conclusion
A loan against LIC policy is a smart financial tool that allows policyholders to access funds without disrupting their life insurance benefits. With lower interest rates, flexible repayment options, and quick processing, it serves as an excellent alternative to unsecured loans.
Understanding the eligibility criteria, benefits, and repayment terms will help borrowers make informed decisions and utilise their loan against securities wisely while keeping their financial future secure.
