Loan Against Your LIC Policy
A loan against an LIC policy lets you reach your own money without ending the policy. The cover continues, bonuses continue to accrue, and the loan plus interest is simply deducted when the policy matures or a claim is paid.
It is the better option whenever the need is temporary. Surrendering a policy to meet a short-term cash requirement permanently gives up cover, bonuses and the maturity date — usually for a fraction of what the policy would have paid.
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Which policies qualify
- ·Participating endowment, money-back and whole-life plans qualify once the policy has acquired a surrender value — typically after two full years of premiums.
- ·Pure term plans do not qualify. They carry no surrender value, so there is nothing to borrow against.
- ·ULIP policies are generally not eligible for a policy loan; partial withdrawal rules apply instead.
- ·The policy must be in force. A lapsed policy has to be revived before a loan can be considered.
How much you can borrow
- ·LIC sanctions a percentage of the surrender value, not of the sum assured — usually most of it, with the exact proportion set by the plan.
- ·The amount therefore grows every year as the policy accumulates surrender value and bonuses.
- ·Interest is charged at the rate LIC declares and revises from time to time. It is not fixed for the life of the loan.
- ·If unpaid interest and the loan together approach the surrender value, LIC can foreclose the policy or treat it as lapsed, so servicing the interest matters.
The process
- 1Check the surrender value on the policy. This is the number the loan is calculated against.
- 2Submit the loan application at the servicing branch with the original policy document.
- 3Sign the loan agreement and, where the policy is assigned or held under MWP, complete the additional documentation.
- 4Receive the amount by NEFT to your bank account, usually within a few working days of sanction.
- 5Repay principal and interest, or allow LIC to adjust them against the maturity or claim payout.
Loan versus surrender versus breaking an FD
- ·Take the loan when the need is short and the policy is worth keeping. You keep the cover and the maturity date.
- ·Surrender only when the policy no longer fits at all — the wrong term, the wrong goal, or a premium you cannot sustain.
- ·Compare against a personal loan honestly: a policy loan is usually cheaper, but it reduces what your family eventually receives.
- ·Never let a policy lapse in order to avoid repaying a loan. That converts a manageable liability into a permanent loss of cover.
Loan Against Your LIC Policy — common questions
How much loan can I get against my LIC policy?
It is a percentage of the surrender value, not the sum assured, and the exact proportion depends on the plan. Because surrender value grows with each premium and with bonuses, the eligible amount increases the longer the policy has run.
Does the life cover continue during a policy loan?
Yes. The policy remains in force and the sum assured stays payable on death, with the outstanding loan and interest deducted from the payout. Bonuses continue to be declared on the policy as normal.
What happens if I do not repay an LIC policy loan?
The loan and accrued interest are adjusted against the maturity or claim amount. If they approach the surrender value, LIC can foreclose the policy or treat it as lapsed, which ends the cover — so paying the interest periodically is what keeps the policy healthy.
Is a loan against an LIC policy taxable?
A policy loan is borrowing against your own asset, not income, so it is not treated as taxable income when received. The tax position on any eventual surrender or maturity payout is a separate question, best confirmed with your chartered accountant.
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Check the official terms
Plan features on this page are simplified summaries. Benefits, bonus rates, eligibility and exclusions are set by LIC and can change — always read the current sales brochure and policy document before you buy.