Every year I see clients make the same mistake. They have a financial emergency, and instead of taking a loan against their LIC policy, they surrender the policy and lose years of accumulated bonus. The loan option is almost always better. Here's everything you need to know.
You're eligible for a loan against your LIC policy once you've paid premiums for at least three complete years. LIC will lend you up to 90% of the policy's surrender value at the time of the loan application. The surrender value grows with each year of premium payment, so the longer the policy has run, the more you can borrow.
The interest rate LIC charges on policy loans is currently 9% to 10% per annum. This is significantly cheaper than a personal loan (12 to 20%) or a credit card advance (30 to 36%). And unlike a personal loan, there's no processing fee, no prepayment penalty, and no impact on your credit score.
Here's a concrete example. A 35-year-old with a 20-year Jeevan Anand policy for ₹10 lakh sum assured, with 7 years of premiums paid, might have a surrender value of approximately ₹2.5 to ₹3 lakh. LIC would lend 90% of that: roughly ₹2.25 to ₹2.7 lakh. Interest at 9.5% on ₹2.5 lakh works out to about ₹1,979 per month. That's manageable for most families during an emergency.
The application process is simple. Visit your LIC branch with your policy bond, identity proof, and a completed loan application form. The branch manager verifies the documents and initiates the loan. Funds hit your bank account within 3 to 7 working days. You can also apply through the MyLIC app or the LIC website if your policy is registered digitally.
Repayment is flexible, which is another reason I prefer this over a personal loan. You can pay interest monthly, quarterly, or annually. The principal can stay outstanding until the policy matures, at which point it's deducted from the maturity proceeds. Or you can repay it whenever you have funds, with no prepayment charges.
When does surrendering make more sense than a loan? Rarely, in my experience. If your policy is under 3 years old, you have no loan option anyway. If the policy has very low surrender value because it's an old one with poor terms, and you urgently need more money than the loan allows, then partial surrender might be considered. But I'd want to review the numbers with you before you take that step.
Calculate your exact loan amount instantly with our free Loan Against Policy Calculator, then call 9415313434 if you have questions.
Use our free Surrender Value Calculator to calculate your own numbers.
