Can You Take a Loan Against Term Insurance Policy?

The most essential purpose of life insurance is to protect the family's financial future if the insured dies young. Several policies tend to offer extra benefits, including the possibility of taking out a loan against them.

Borrowing against life insurance policies allows policyholders to use their policy's cash value as collateral to obtain a loan. The loan amount is usually a percentage of the policy’s surrender value, and the outstanding loan, including interest, reduces the death benefit if unpaid.

This article will explore the concept of taking a loan against a term life insurance policy and how this financial option works.

A loan against a life insurance policy refers to borrowing some funds by using the policy's value as security. This usually comes in handy with life insurance that has a built-in cash value.

Examples include whole life insurance and universal life insurance. Term life insurance, conversely, does not usually entail such an element and, therefore, cannot be loaned against.

Can You Take a Loan Against Term Life Insurance Policy?

If your term life plan has provisions for a loan, just like in the case of a return-of-premium feature, the loan is generally built around the policy's surrender value.

Here's how it works:

Eligibility Check

Pay-out on the Loan

Interest Rates

Repayment Terms

1. Policy Type

2. Policy Maturity

3. Loan Limit

Step 1: Verify Eligibility

Step 2: Submit Application

Step 3: Provide Documents

Step 4: Approval Process

Processing Fee

Service Charges

Impact on Death Benefit

Loan Limits

Repayment Obligation

Consultation