India’s Insurance Regulatory and Development Authority (IRDAI) has introduced a new rule to help policyholders. This rule lets policyholders use the cash value of their life insurance policies to get financial help without giving up their policies. This loan option helps people handle unexpected financial needs.
In this article, we will explain the benefits of an IRDAI policy loan, how to get a loan against your policy, and why it is better than traditional loans.
How To Get A Loan Against A Life Insurance Policy
When you want much-needed funds but have no collateral or a poor credit rating, using your life insurance policy as security for purposes of borrowing can be an alternative. The cash value represents the accumulated savings within your policy. Normally, lenders allow up to between 60% and 80% of this cash value which acts as the maximum amount that one can borrow.
Below are the steps involved in obtaining a loan against an insurance policy:
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Check Eligibility: Find out if your plan qualifies for an advance. However, not all policies do qualify. Generally, traditional insurance plans such as money-back or endowment policies qualify while ULIPs and term plans do not.
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Reach Your Insurer: Confirm with your insurer your eligibility for this product then ask about charges levied on interests and any other arising costs. These forms will be availed and may include instructions on endorsements by the company.
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Collate Required Documents: Have identification proof, address proof and original insurance papers ready among others you may require additionally from your insurer so quickly confirm before coming up with anything else.
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Submit Application: Complete online applications or go to a nearby branch office personally where the underwriter scrutinises it along with details about the contract.
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Get Cash: If approved, funds are paid using methods agreed upon (bank transfer or cheque).
Benefits Of Policy Loans Over Personal Loans
Policy loans come with several advantages over conventional personal loans or even credit cards:
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Reduced APRs: Interest rates charged by Low-interest rate policy loans are usually lower than those of personal loans or credit cards, resulting in savings on interest payments down the road.
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Easy Qualification Process: When borrowing a life insurance loan, the process of qualification is much easier because the information is already with the insurer and your policy also acts as the security.
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Minimalistic Paperwork: In a loan against an insurance policy, it is not necessary to flood your lender with paperwork.
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No Credit Check Needed: Policy eligibility does not rely on credit scores like other types of loans. These products are secured by your policy’s cash value.
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Quick Disbursement: Because this insurer already has your information and uses your policy to secure a loan, approval and disbursement happen faster than when taking out other forms of loans.
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Keeps Cover Running: Withdrawal from this facility will still leave intact the assured death benefit meaning that beneficiaries are paid after deducting what was lent out.
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Tax-Free Access to Funds: Normally one can obtain funds through a loan against an insurance policy without being taxed for them.
Understanding Insurance Policy Loans
However, you need to compare the loan terms with those of other lenders before committing to your insurance company since you may find better interest-rate deals elsewhere. You should understand the repayment terms, interest rate and any penalties for early repayment before you commit to the loan.
If one fails to repay the loan, then his/her policy lapses and there is a reduced death benefit payout. New IRDAI rules now make policy loans mandatory for all life insurance savings products, adding a liquidity option for all policyholders.
Steps To Secure A Loan From Your Life Insurance Policy
Taking out a loan against your life insurance policy can provide you with the financial assistance you need during unexpected situations. Here are the steps you need to follow to secure a loan against your policy:
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Confirm policy details: Check whether your policy can accommodate loans and confirm how much cash value it has.
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Compute loan amount: Find out the maximum amount of credit that you can access by percentage of cash value.
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Engage with your insurer: Discuss loan parameters, interest rates and repayment schedule with your insurance firm.
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Submit required papers: Give all necessary documents as per request from your insurance company.
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Fill out the application form: Complete this online or in their local offices.
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Disbursement: The agreed method will determine how much money you receive upon approval of the loan request.
Conclusion
IRDAI policy loan benefits can be tapped into during emergencies as a flexible and economical remedy. Policyholders must be conversant with borrowing against life insurance cash value to make wise choices that guarantee financial security without having an impact on their policy coverage.
For more queries about various insurance regulations and guidelines, or to register a complaint, readers can call 18004254732 or drop an email at complaints@irdai.gov.in.
