Many people consider life insurance only as a protection and financial tool for their family’s future. However, do you know that certain life insurance policies can also help you meet your financial needs during your lifetime?

This blog explains how a loan against a life insurance policy works, who becomes eligible, how much you can borrow, interest rates, the risks to consider, and why many people are choosing this route. 

What is a Loan against a Life Insurance Policy?

When you buy any life insurance policy - especially traditional savings-based plans - the policy builds a certain cash value over time. This value keeps growing as you pay premiums. Banks and insurance companies allow you to borrow a part of this accumulated amount whenever you need it. This is often called a Loan against a life insurance policy, and many people prefer it because:

  • There is no credit score check.
  • The approval is quick.
  • You can repay at your convenience.
  • Your policy remains active even when you borrow against the policy.

In what scenarios can you apply for a loan against Life Insurance?

  • A sudden medical emergency
  • Paying school or college fees
  • Covering business expenses
  • Clearing a short-term financial gap
  • Funding small home repairs
  • Dealing with unexpected travel or family needs

Also Read: How to Buy a Life Insurance Policy?

How Does the Loan Against Life Insurance Work?

Let’s say your policy has built INR 3,00,000 in cash value. The insurance provider may allow you to borrow around 70 to 90% of it. So you might get INR 2,10,000 to INR 2,70,000 as a quick loan - without hassles. Then, you can repay in a lump sum or small installments. Meanwhile, your policy benefits continue.

Who Can Apply for This Loan?

If the policy has completed the minimum lock-in period.
If the policy has built enough cash value
If the policy premiums have been fully paid until now
If there are no outstanding issues with the policy

Key Benefits of Taking a Loan Against Life Insurance

  • Lower interest rates compared to personal loans
  • No credit score check, as the policy acts as security
  • Quick processing with minimal paperwork
  • Flexible repayment, often without strict EMIs

How to Borrow Against a Life Insurance Policy? Step-by-Step Breakdown

If you’re wondering how the whole thing works, here is the simplest explanation of the insurance policy loan process:

Step 1: Confirm that your policy is eligible

Contact your insurer or check your policy bond. Only plans with cash value qualify.

Step 2: Request the loan form

You can visit the branch, get in touch with a life insurance advisor, or download the form online.

Step 3: Submit the required documents:

Most insurers only ask for:

  • ID proof
  • Policy copy
  • Loan application form
  • No salary slips, no bank statements, no credit score check.

Step 4: The policy value is reviewed

The insurance provider calculates the loanable amount - a percentage of your policy’s built-up value.

Step 5: Approval and disbursement

Once approved, the money is sent to your bank account. Some insurers release the funds within 48–72 hours. This ease of borrowing is the reason people prefer to borrow against life insurance instead of taking expensive personal loans.

How Much Can You Borrow? Understanding Surrender Value

Every savings-based policy has something called surrender value - the amount you get back if you decide to stop the policy before maturity. Most lenders offer loans based on the value. For example, if your policy’s surrender value is INR 2,50,000, you may receive up to 85% of it. This amount is called the loan against surrender value, and it gives lenders a safety cushion and assurance.
The surrender value keeps increasing as:

  • You pay more premiums.
  • Your policy earns bonuses.
  • Your policy ages.

So the longer you keep the policy, the more loans you qualify for.

Are There Any Risks?

Like any financial decision, this one also comes with conditions:

  1. If you do not repay, the loan may affect policy benefits
  2. When the loan plus interest grows too big, it can reduce the maturity amount or death benefit.
  3. If the loan is unpaid and the policy lapses, the insurer may adjust the loan from the surrender value. So it’s important to keep the policy active.
  4. You may get a smaller amount than expected

Since it depends on cash value—not the policy sum assured—you might qualify for less during the early years of the policy. However, these risks are easy to manage if you plan repayments wisely.

Bottom Line

Using your life insurance policy as a loan is a smart financial move that many people overlook. It can offer you real help during tough times by giving you flexibility, dignity, and peace of mind.  Once you understand how it works, this type of loan is more than just a financial tool. It can be a lifeline that protects your goals and helps you keep your self-respect. So, if your policy has built up value, do not see it only as a safety bubble for the future. Think of it as a resource you can tap into today to handle unexpected challenges without compromising your confidence or independence.