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Secure Loan: Tips and Advantages .
Vivek'S son got admission into a very good school. But there was small problem - the school wanted a deposit of Rs 25,000, along with the other regular dues, to confirm the admission.The entire school dues came to around Rs 32,000 and Anand did not have this amount handy in his savings account. At the same time, he did want his son to lose out on the opportunity of getting admission into a prestigious school, due to a lack of funds. He was trying to figure out how to overcome this temporary financial crunch when his friend sunil, an insurance agent, came to the rescue. Sunil advised Vivek to take a loan against his life insurance policy. This helped him to pay for the admission.

So, what does insurance mean to the common man? Insurance, these days, is not restricted to securing lives and providing some financial relief to a family, after the death of the policyholder. It is not just a means of getting tax benefits, either. It has gained prominence as an investment vehicle and is a ready security, against which, a short-term loan can be availed.

Against which insurance policies can one take a loan?
You can take a loan only against whole life policies and endowment policies.You cannot take a loan against any general insurance policy, like - fire, marine, theft, etc. and neither can you avail of a loan against any retirement solutions.
After what period can a loan be taken on an insurance policy?
After completion of 3 years i.e. premium should have been paid for three years in order for the policy to become eligible as security for a loan.

How much can you borrow against an insurance policy?
You can avail of a loan of up to 90 per cent of the surrender value / cash value of your policy.

What is surrender value? How is it calculated?
Surrender value / cash value is the encashable amount of the policy, before its maturity date. It is calculated as 30 per cent of the sum of all premiums paid till date, without including the first premium.

What if the policyholder is a minor? Can the applicant take a loan on the policy?
Yes, an applicant can take a loan on the policy of a minor, since he is the one who is paying the premiums.

What is the rate of interest charged on the loan?
The rate of interest is decided by the insurance company, but is generally the same as the one prevailing in the market for loans.

By when must the loan to be repaid?
The insurance company decides the term of the loan, by taking into consideration the maturity date of the policy, the amount of the loan, etc. Before the policy matures, you are expected to repay the entire loan along with the interest.

What happens if it cannot be repaid before maturity?
At maturity, if the loan remains unpaid, then from the maturity value of the policy, the outstanding amount, as well as the interest due, thereon, will be deducted and the balance will be given to the policyholder.

What happens if the policyholder dies before the loan is repaid?
In case the policyholder dies, before the loan is repaid, the nominee will get the benefits of the policy, after deducting the outstanding amount of the loan and the interest due, thereon.

Can the loan be repaid in instalments?
Yes, this loan is like any other and will have to repaid in Equated Monthly Instalments (EMIs).The insurance company will determine the EMIs based on the loan amount, the maturity date of the policy, the rate of interest, the tenure of the loan, etc.

For what purposes can a person take a loan on an insurance policy?
You can take a loan on an insurance policy to help you overcome a very short-term financial crisis e.g. deposits / donations for admissions of children to school, down-payments for vehicles, consumer durables, paying initial booking amounts for home loans, etc.
Do all the benefits of the policy still exist during the term of the loan?
Yes, the policy cover as well as the benefits exist during the term of the loan.These are two different contracts - the first is an insurance policy and the second is a loan.
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