What is Loan Against Insurance Policy?
Some life insurance policies accumulate a cash value over time. Once a policy has built up a surrender value, you can borrow against it without surrendering the cover. The policy is assigned to the lender as security, and the loan plus interest is recovered from the claim or maturity amount if you do not repay earlier.
The borrowing limit depends on the surrender value, not the sum assured, and surrender value is often lower than the premiums you have paid, especially in the early years. Eligible policies are mainly traditional endowment, whole life and money-back plans, and some unit-linked plans after the lock-in. Always watch the loan balance, because it can eat into the surrender value and cause the policy to lapse.
Loan Against Insurance Policy at a glance
| Typical loan amount | Often up to about 80% to 90% of the policy's surrender value; smaller policies give smaller loans |
|---|---|
| Tenure | Flexible, usually until policy maturity, with no fixed EMI in many cases |
| Indicative interest rate | Roughly 8% to 12% a year, depending on insurer and policy type |
| Processing fee | Often nil or a small fee, plus applicable taxes |
| Security / collateral | Assignment of the insurance policy in favour of the lender |
| Typical time to disbursal | Often a few days to a couple of weeks, depending on documents and the insurer |
| Loan type | Secured |
Indicative ranges based on general market practice in India. Your offer will differ. Last reviewed 3 October 2026.
Who should consider Loan Against Insurance Policy?
- Policyholders who need cash for a short period without surrendering a long-held policy.
- People with endowment or whole life policies that have built up a meaningful surrender value.
- Borrowers with limited access to other secured credit who still hold older traditional plans.
- Families who want to keep the life cover intact while managing a temporary expense.
Loan Against Insurance Policy eligibility criteria
| Criterion | What lenders typically look for |
|---|---|
| Policy type | Traditional plans such as endowment, whole life and money-back usually qualify. Pure term plans have no surrender value, so they do not. |
| Policy vintage | The policy must have acquired a surrender value, which often needs premiums paid for at least two to three years. Newer policies may not qualify. |
| Premium status | The policy should be in force, with premiums paid up to date. Lapsed policies must be revived before they can be used. |
| Ownership | The policyholder must be the applicant and able to assign the policy. Policies under certain restrictions, such as some Married Women's Property Act policies, may need extra steps. |
| Loan amount cap | The loan is limited to a percentage of the surrender value, and lenders may set a minimum policy value to be eligible. |
| Age and capacity | Adult policyholders are generally eligible. Because the policy is the security, income checks are usually light, though the lender decides. |
Documents required for Loan Against Insurance Policy
- Original insurance policy document
- Premium receipts showing payments are up to date
- PAN card and Aadhaar for KYC
- Address proof and recent photograph
- Loan application form and assignment deed or form
- Cancelled cheque or bank details for crediting the loan
- Nominee or beneficiary details, if the insurer requires them
How does Loan Against Insurance Policy work, step by step?
- Check policy type and surrender value. Ask the insurer or lender for the current surrender value and whether the policy qualifies. This number sets the maximum loan you can get.
- Apply to the insurer or lender. Submit the loan form, KYC and policy document. Many insurers offer policy loans directly, while some lenders and banks accept assigned policies.
- Assign the policy. You assign the policy to the lender, who becomes the party entitled to the proceeds up to the loan balance until you repay.
- Sanction and disbursal. You receive the sanction terms, interest rate and Key Fact Statement, and the amount is credited to your account.
- Pay interest and keep paying premiums. Interest is paid periodically or added to the loan. You must continue paying premiums, otherwise the policy can lapse even with a loan open.
- Repay and reassign. After repayment, the lender releases the assignment and the policy returns fully to you. If you do not repay, the loan is recovered from the claim or maturity amount.
Estimate your Loan Against Insurance Policy EMI
Example values only. Replace them with the figures in your own offer.
Reducing-balance method. Excludes processing fees, GST, insurance and other charges.
Loan Against Insurance Policy interest rate, fees and charges
The interest rate on policy loans is usually moderate, and fees are small. The bigger cost is hidden: unpaid interest may be added to the loan, and if the balance grows beyond the surrender value, the insurer can terminate the policy. That means you lose cover and any bonus built up. Track the loan balance regularly.
- Interest rate
- Charged on the outstanding loan, often with simple interest. Rates differ by insurer and policy type.
- Processing or documentation fee
- Often nil or small, plus taxes. Ask for the list of charges before you apply.
- Interest capitalisation
- If interest is unpaid, it may be added to the loan, which raises the balance and the risk that it exceeds surrender value.
- Premium obligations
- You must keep paying premiums during the loan. A missed premium can lapse the policy and reduce or remove the security.
- Reduced claim or maturity payout
- Any outstanding loan and interest is deducted from the death benefit or maturity amount, so your family receives less.
Indicative rates as of October 2026. Figures are market ranges, not offers, and are reviewed every 90 days (next review January 2027). Your rate is fixed by the lender in the sanction letter and Key Fact Statement.
Worked example: what this loan really costs
Illustration for mutual fund units worth about 10 lakh marked under lien, using mid-range figures seen in the market as of October 2026. Your lender's Key Fact Statement will show your own numbers.
| Loan amount | ₹5,00,000 |
|---|---|
| Interest rate (reducing balance) | 10.5% a year |
| Tenure | 24 months |
| Monthly EMI | ₹23,188 |
| Total interest paid | ₹56,512 |
| Total repaid | ₹5,56,512 |
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), with r the monthly rate. Processing fees, GST and insurance are extra; the annual percentage rate in the Key Fact Statement includes them. Check the figures in our Loans Against Assets EMI calculator.
Pros and cons of Loan Against Insurance Policy
Advantages
- You keep the life cover and the policy in force
- Moderate interest rates compared with unsecured loans
- Light documentation and often no heavy income checks
- Flexible repayment, often with no fixed EMI
Limitations
- Only policies with surrender value qualify, and term plans cannot be used
- Loan limit is tied to surrender value, which can be low in the early years
- Unpaid interest can push the loan above surrender value and lapse the policy
- Outstanding dues reduce the amount your family receives on a claim
Mistakes to avoid with Loan Against Insurance Policy
- Assuming term insurance qualifies
- Pure term plans have no surrender value and cannot back a loan. Confirm your plan type before you apply and avoid paying any fee for an ineligible policy.
- Ignoring accumulating interest
- If interest is added to the loan each year, the balance can grow beyond surrender value and the policy can be terminated. Pay interest regularly.
- Stopping premium payments
- Even with a loan, premiums must continue. Missing them can lapse the policy, and you may lose both the cover and part of its value.
- Forgetting the family impact
- A large unpaid loan is deducted from the claim payout. Make sure your nominees know about the loan, and keep cover adequate for their needs.
Loan Against Insurance Policy compared with similar loans
- Loan Against Insurance Policy vs Loan Against Fixed Deposit
- An FD loan is secured by a known deposit value and can lend close to 90% of it with no risk to your protection. A policy loan depends on surrender value and can threaten your life cover if the balance grows too large.
- Loan Against Insurance Policy vs Loan Against Securities
- Securities are market-linked and can trigger margin calls. An insurance policy has a stable surrender value, but the limit is usually lower, and only traditional policies with cash value qualify.
- Loan Against Insurance Policy vs Personal Loan
- A personal loan is unsecured and costs more but does not touch your insurance cover. A policy loan costs less and has light checks, but outstanding dues cut the benefit your family would receive.
Rules and regulations that apply to Loan Against Insurance Policy
Policy loans are governed by insurer terms under the insurance regulator's rules, and the available loan depends on the policy's surrender value. The loan is recovered from the claim or maturity proceeds if unpaid. Check the policy terms and the Key Fact Statement, where provided, for rate and charges.
Rules that protect you, with the source
- Key Fact Statement. For retail and MSME loans sanctioned from 1 October 2024, the lender must give you a KFS with the annual percentage rate and a repayment schedule before you sign, and cannot charge a fee that is not in it. RBI circular, 15 April 2024.
- Pre-payment charges. For floating-rate loans to individuals for non-business purposes sanctioned or renewed from 1 January 2026, no pre-payment or foreclosure charge can be levied. RBI Directions, 2 July 2025.
- Free credit report. Every credit bureau must give you one free full report with score each calendar year. RBI notification, 1 September 2016.
- Complaints. If the lender does not resolve a complaint within 30 days, you can go to the RBI Ombudsman free of charge. Integrated Ombudsman Scheme, 2021 · file at cms.rbi.org.in.
Loan Against Insurance Policy: frequently asked questions
Can I take a loan against my life insurance policy in India?
Yes, if your policy has a surrender value, such as endowment, whole life or money-back plans. The insurer or a lender advances a share of that value, and the policy is assigned as security. Pure term plans do not qualify, since they have no cash value.
How much loan can I get against my insurance policy?
Usually around 80% to 90% of the policy's surrender value, depending on the insurer and plan. The surrender value is often lower than premiums paid, particularly in early years, so the loan may be smaller than you expect. Ask the insurer for the current figure.
Which insurance policies are eligible for a loan?
Traditional plans with a cash value, such as endowment, whole life and money-back policies, are the most common. Some unit-linked plans may qualify after the lock-in. Term plans and policies without surrender value, or not yet in force long enough, are not eligible.
What happens to my policy if I do not repay the loan?
The outstanding loan and interest are deducted from the claim or maturity payout. If unpaid interest pushes the balance above the surrender value, the insurer can terminate the policy, and you lose cover. Pay interest regularly to protect your policy.
Do I need to keep paying premiums during the loan?
Yes. The policy must stay in force, and a missed premium can lapse it even with a loan open, which would also weaken the lender's security. Keep paying premiums on schedule, and check how any grace period works for your plan.
Is a loan against insurance better than surrendering the policy?
If you want to keep the cover and expect to repay, a loan is usually better because surrender ends the policy and may return less than premiums paid. If the policy no longer suits you, surrender may be sensible. Compare the surrender value, interest cost and your protection needs.
Is the interest on a policy loan lower than on a personal loan?
Usually yes, since the policy is security, with rates roughly 8% to 12% a year against higher rates for unsecured loans. The difference is partly offset by the risk to your cover if interest builds up. Compare total cost, including the effect on your family's benefit.
Loan Against Insurance Policy in your city
Local guidance, documents and an EMI calculator for 1461 cities across India.
Official sources and further reading
These guides are written from Reserve Bank of India rules and official scheme pages. Rules, rates and scheme terms change, so check the current position on these sites and in your lender's Key Fact Statement before you apply.
- SEBI. The securities market regulator, relevant to loans against shares, mutual funds and bonds.
- RBI: Key Facts Statement (KFS) for loans and advances. The Reserve Bank of India notification that tells lenders to give every borrower a plain-language statement of the full cost of a loan.
- RBI Complaint Management System. Where to take a complaint against a bank, NBFC or other regulated lender if the lender does not resolve it.
- RBI (Pre-payment Charges on Loans) Directions, 2025. Bars pre-payment charges on floating-rate loans taken by individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026.
- Reserve Bank - Integrated Ombudsman Scheme, 2021. The single complaint scheme for customers of banks, NBFCs and other RBI-regulated lenders.
- RBI: Free Annual Credit Report to Individuals. Credit bureaus must give you one free full credit report with score every calendar year.
- RBI Financial Education. Consumer guidance from the Reserve Bank of India on borrowing, fraud and your rights as a customer.
Edited by Hemant Kumar. Rates on this site are indicative ranges, not offers.
This page is general information, not personalised financial advice and not an offer. Rates and terms shown are indicative and vary by lender and applicant. Verify with the lender and read the Key Fact Statement before you sign.