An LIC policy loan is one of the cheapest and most flexible ways to borrow in India — using your existing LIC policy as collateral, at around 9.5% per annum. Here's how it works, who can use it, and the exact numbers.
How Much Can You Borrow?
Up to 90% of the surrender value of your in-force LIC policy. For paid-up policies, the limit is 85%. The policy must have completed 2 full years' premiums for it to have surrender value.
What Is the Interest Rate?
Currently around 9.5% p.a. (paid half-yearly). The rate is decided by LIC and may change. You can pay interest only, or repay principal + interest partially or fully — no prepayment penalty.
How a Policy Loan Beats Other Loans
| Parameter | LIC Policy Loan | Personal Loan |
|---|---|---|
| Interest | ~9.5% | 11–18% |
| Processing fee | None | 1–3% |
| CIBIL check | No | Yes |
| Income proof | No | Yes |
| Disbursement | 3–7 days | 3–10 days |
| Collateral | Policy is the collateral | None (unsecured) |
| Policy benefits | Continue fully | — |
Loan Repayment — Three Options
- Pay only interest — half-yearly; principal stays, compounding against future claims
- Pay interest + part principal — reduces outstanding loan over time
- Let it auto-deduct at maturity — LIC subtracts loan + interest from maturity payout
Risks You Should Know
- Unpaid interest compounds: a ₹5 lakh loan at 9.5% over 10 years becomes ~₹12.4 lakh if you pay only interest
- Loan reduces maturity payout: principal + interest are deducted from maturity/death claim
- Policy can become paid-up: if you stop paying premiums AND the policy surrender value drops too low, the policy may lapse
Worked Example
Jeevan Anand 915, age 30, SA ₹10 Lakh, 21-year term, paid 5 years.
- Total premiums paid: ~₹2,60,000
- Approx. surrender value: ~₹1,40,000
- Maximum loan available: 90% × ₹1,40,000 = ₹1,26,000
- Half-yearly interest: 9.5% × ₹1,26,000 / 2 = ₹5,985