Sahare Wealth · Loan against insurance
Need cash? Borrow against your policy
If you hold a life insurance policy that has built up value, you can borrow against it without surrendering it. Cover continues, but unpaid interest can eat into the policy. Know both sides first.
- Policy stays in force
- Risks explained upfront
- Help from Nagpur
The basics
How a loan against a policy works
A policy with a savings element builds up a surrender value. The loan is secured against that value.
Eligible policies
Savings-type policies
Endowment, money-back and whole life policies usually qualify. Pure term plans have no surrender value, so they usually don't.
Route 1
Policy loan from the insurer
The insurance company lends directly against your policy, with a lien noted on it.
Route 2
Loan from a bank or NBFC
The policy is assigned to the lender until you repay. The assignment is recorded with the insurer.
Compare
Insurer's policy loan vs lender's loan with assignment
| Policy loan from insurer | Loan from bank or NBFC | |
|---|---|---|
| Who lends | Your insurance company | A bank or NBFC |
| What is recorded | A loan or lien on the policy | An assignment of the policy in the lender's favour |
| Process | Usually simpler, as the insurer has your records | More paperwork; the insurer must record the assignment |
| Policies accepted | Its own policies only | Depends on the lender and insurer |
| Cover during the loan | Continues, if premiums are paid | Continues, if premiums are paid |
| Ask about | Interest, and what happens if the loan exceeds the policy value | Charges, and the process to reassign the policy on repayment |
Process
Getting a loan against your policy
The steps are similar for both routes. The insurer or lender confirms what your policy qualifies for.
Check the policy
The policy must be in force, with premiums paid up to date, and must have a surrender value. Check this with the insurer.
Choose the route
Ask the insurer about a policy loan, or a bank or NBFC about a loan with assignment. Compare the terms.
Submit the documents
Provide the policy papers, KYC and bank details, and sign the loan or assignment forms.
Receive the money and repay
The money is credited to your bank account. After you repay, the lien is removed or the policy is reassigned to you.
Before you borrow
Risks to understand
The policy can lapse if the loan outgrows its value
Interest keeps adding to the loan. If the loan plus interest grows beyond the policy's surrender value, the insurer or lender can close the policy to recover the amount. You may lose your cover and your savings.
Interest keeps building
Unpaid interest is often added to the loan. Pay it regularly so the balance doesn't grow.
Cover may reduce
If the policy ends with a loan outstanding, the claim amount can be reduced by the loan, or cover may end.
Assignment transfers rights
While the policy is assigned, the lender has rights over it. Get it reassigned after repaying.
Premiums must continue
If you stop paying premiums, the policy can lapse even with a loan running.
Only registered lenders
Borrow only from insurers, and from banks and NBFCs registered with RBI. Check on RBI Sachet (opens in a new tab).
Read the agreement
Understand the interest, repayment terms and what happens on default before you sign.
Official sources
Check the details yourself
Questions
Frequently asked questions
Does my insurance cover stop when I take a loan?
No, not as long as you keep paying the premiums and the loan stays within the policy's value. If the policy ends with a loan outstanding, cover may reduce or stop.
Which policies qualify?
Policies that build a surrender value, such as endowment, money-back and whole life plans. Pure term plans do not, and many unit-linked plans qualify only after their lock-in period.
What if I can't repay?
The loan plus interest is recovered from the policy's value. This can end the policy. Talk to the insurer or lender early if you are struggling.
What is assignment?
A formal transfer of your policy's rights to the lender as security. It is recorded with the insurer and reversed when you repay.
Should I surrender the policy instead?
Surrendering ends the policy, and you may get less than you paid. A loan keeps it alive but adds interest. Ask us to help you compare.
What interest rate will I get?
It depends on the insurer or lender. Ask us for current options.