Financial Flexibility with Loan Against Policy: Things You Need to Know

In today's world, unexpected events can happen at any given moment. Whether it's a sudden health emergency or a financial crisis, one needs to be financially prepared to tackle such uncertain situations. Life insurance policies are one such option that serves as an incredibly safe way to ensure financial security. In addition to providing a financial cushion for your loved ones in case of an untimely demise, life insurance policies come with other benefits too, such as loan against policy.

A loan against policy, as the name suggests, is a loan taken against your existing life insurance policy. In simple words, it is a partial withdrawal of the sum assured amount. Most insurance companies allow you to take a loan against your life insurance policy after a minimum of 3 years of payment of premiums. However, the amount of loan you can avail of depends on the sum assured of the policy and the policy's current surrender value.

The interest rate charged on a loan against policy is significantly lower compared to other forms of loans. The interest rate is calculated based on the policyholder's age, the policy's tenure, the amount of loan, and the policy's surrender value. The loan repayment tenure is also flexible. It can range from a few months to a few years, and the loan can be repaid in installments or as a lump sum.

When it comes to loan against policy, it's essential to keep in mind that if the loan isn't repaid on time, the policy's value diminishes, and it can lead to policy lapses. Hence, timely repayment of the loan is crucial to ensure that your life insurance policy continues to offer financial protection to you and your loved one.

Another point to note is that loan against policy is typically granted as a secured loan, which means that the policy serves as collateral for the loan. Therefore, even if you have a bad credit score, you can still avail of a loan against policy.

To conclude, a loan against policy offers a dual benefit of financial protection and easy access to funds during unexpected financial emergencies. However, it is essential to understand the loan's terms and conditions, the repayment tenure, and the interest rate before availing of the loan against policy. Additionally, it is crucial to ensure that the loan is repaid on time to avoid policy lapses and a potential loss of the policy's value.

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