What is a Loan Against LIC Policy?
A loan against an LIC policy lets you borrow money from LIC by pledging your insurance policy as collateral. The loan amount is a percentage of the policy's surrender value, and LIC charges a fixed interest rate (currently 9.5% to 10.5% per annum simple interest). The policy continues to remain in force — you don't have to surrender it.
How is the Maximum Loan Amount Calculated?
Loan Amount = Surrender Value × Loan-to-Surrender Ratio
For most LIC endowment and money-back plans, the maximum loan you can take is up to 90% of the surrender value. The exact percentage depends on the plan and the year of policy issuance.
How is the Loan EMI Calculated?
For a regular EMI-style repayment, the formula is:
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
Where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the number of monthly EMIs.
Eligibility for LIC Policy Loan
- The policy must have acquired the surrender value (typically after paying 2-3 full years' premiums).
- All premiums up to the date of loan must be paid in full.
- The policy must be in force (not lapsed, not paid-up, not assigned).
- You must be the policyholder (assignee, if policy is assigned).
- The loan amount is capped at the surrender value of the policy.
Documents Required for LIC Policy Loan
- Original LIC policy bond / document
- Last 2-3 premium payment receipts
- ID proof (Aadhaar / PAN / Passport)
- Address proof
- Cancelled cheque or bank passbook copy
- Loan application form (available at LIC branch or downloaded from lic.in)
Benefits of LIC Policy Loan
- ✅ No credit check — your policy is the only collateral.
- ✅ Low interest rate — much cheaper than personal loans (which start at 11-24%).
- ✅ Quick processing — typically 7-15 days.
- ✅ Policy continues — life cover and bonuses keep accumulating.
- ✅ Flexible repayment — choose EMI, interest-only or lump-sum at maturity.
- ✅ No tax on loan amount — it's your own money, not income.
Interest Rate Comparison (LIC vs Other Loans)
| Loan Type | Typical Interest Rate | Processing Time |
|---|
| LIC Policy Loan | 9.5% - 10.5% p.a. | 7-15 days |
| Personal Loan (Bank) | 11% - 24% p.a. | 3-7 days |
| Gold Loan | 9% - 16% p.a. | 1-3 days |
| Home Loan | 8.5% - 9.5% p.a. | 15-30 days |
| Credit Card EMI | 14% - 42% p.a. | Instant |
Things to Watch Out For
Warning: If you don't repay the loan or interest, the outstanding amount is deducted from your maturity benefit. If the loan plus interest ever exceeds the surrender value, the policy lapses and you lose the entire life cover.
Frequently Asked Questions
What is the interest rate on LIC policy loan?
LIC charges 9.5% to 10.5% per annum simple interest on policy loans, depending on the plan type. The rate is fixed at policy issuance and does not change during the loan tenure.
How much loan can I get against my LIC policy?
You can typically borrow up to 90% of the surrender value of your LIC policy once it has acquired the surrender value (usually after 2-3 years and paying at least 2-3 full years' premiums).
Is LIC policy loan taxable?
No. The loan amount is not taxable as it is your own money borrowed against your policy. However, if you surrender the policy and the loan is waived, the waived amount may be treated as income.
Can I take loan on a paid-up LIC policy?
Yes, you can take a loan on a paid-up LIC policy, but the loan amount is based on the paid-up surrender value (which is lower than the full surrender value).
How to apply for LIC policy loan?
Visit your nearest LIC branch with the policy document, ID proof, address proof, last premium receipt, and a cancelled cheque. Fill out Form 3665-A (Loan Request Form). LIC will verify and disburse the loan in 7-15 days.
Can I prepay LIC policy loan without penalty?
Yes. LIC policy loans have no prepayment penalty. You can pay off the entire outstanding amount at any time and the policy returns to its full status.
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