Can you get a loan against insurance? Here are all the details.

  • Life Insurance


The Indian financial markets are home to a wide range of loans. If you are ever in need of emergency funds, you have a variety of financial products to rely on, right from collateral-free personal loans to loans against property or gold.

Among the many kinds of loans available is a loan against your insurance policy. Yes, you read that right. In addition to the wide range of benefits offered by life insurance plans, there is also the option of availing a loan against your policy. Not all life covers come with this feature though, so before you buy your life insurance plan, take some time to go through its benefits and check if it gives you the option of taking out a loan.

And if you're interested in finding out more about getting a loan against life insurance, here are all the essential details.

What is a loan against insurance?

A loan against insurance is a facility that allows you to borrow money against your life insurance policy. This is a convenient feature that can help you take care of any emergency financial needs. Here, the value of the policy is considered as the collateral against which the loan is disbursed to you.

What kind of life insurance plans offer the option to avail a loan?

The facility to avail a loan against insurance is not available in all life covers. Typically, you can avail a loan only with traditional policies like money back plans or endowment plans. That said, not all traditional life insurance plans allow you to avail a loan. So, it is best to read through the terms and conditions of the plan you wish to purchase to check if it comes with the loan benefit.

How does a loan against insurance work?

In a loan against insurance, the policy is essentially pledged in exchange for the loan from the insurer. However, the loan is only sanctioned after the policy acquires its surrender value. This is simply that value that you will receive if you decide to exit the policy before the maturity date.

Typically, life insurance policies acquire a surrender value only after all due premiums have been paid for two years or three years, depending on the policy's terms and conditions. Once this period is over and your policy has acquired the surrender value, you will be eligible to avail a loan against your insurance plan if it comes with this feature.

The maximum amount of loan that you can avail again depends on the T&C of the policy. In general, however, most insurance plans allow you to borrow around 85% to 90% of the surrender value. The rate of interest charged on the loan is also different depending on the insurer you have chosen to buy your policy from. And the loan needs to be repaid during the policy term.

The key advantage of a loan against insurance is that the rate of interest on these borrowings is often lower than the cost of personal loans. So, you can avail a loan to meet your emergency needs in a more cost-effective manner.

Loan against insurance: An example

The ABSLI Guaranteed Milestone Plan, for instance, gives you the option to take a loan against your policy once it has acquired surrender value. Here are the key details of how this works.

  • Your policy acquires surrender value after all due premiums for at least two full years are paid.
  • After this, you will be eligible to avail a loan against the surrender value of your policy.
  • The minimum amount of the loan you can avail is Rs. 5,000.
  • The maximum amount of the loan you can avail is 85% of the surrender value.

What are some things to consider before availing a loan against your policy?

Before you avail a loan against your policy, there are some important things that you need to keep in mind. The factors can help you decide if a loan against your insurance plan is the right course of action for you. Here are some such things to keep in mind.

  • Eligibility

    One of the first things you need to check is whether your policy offers you a loan. And even if it does, you need to verify the waiting period, or the period it takes for your policy to acquire a surrender value. Only after this will you be eligible to take a loan against your plan.

  • Loan amount

    Another thing to keep in mind is the amount of loan that you can avail. The insurer will typically specify the minimum and maximum amounts of loan you can take against the policy. Keep this in mind before you draw up a financial plan to borrow money against life insurance.

  • Rate of interest

    The rate of interest charged for loans against insurance plans generally changes from one calendar year to the next. Ensure that you keep track of the interest rates pertaining to the year in which you plan to avail your loan.

  • Repayment of the loan

    The loan taken against your insurance policy needs to be repaid during the policy tenure. In case of any amount remaining outstanding at the time of the claim, the insurer will generally deduct it from the claim payouts made.


This sums up the basic details about availing a loan against your insurance plan. Keep in mind that it's best to resort to this course of action only in case of any extreme financial need. Availing a loan for inessential purposes only reduces the amount of protection you have during the repayment tenure.


A loan may be a quick-fix for your emergency cash needs. But a better way to ensure that you are well-prepared for emergencies is to set up a reliable source of extra income. Our blog outlines 5 ways to do this.

Read it here


If you've already taken a loan against your life insurance plan and are worried about reduced coverage till you repay your loan, there's a simple way to work around this.

Say hello to the ABSLI DigiShield Plan, which gives you ample coverage at cost-effective premiums. And that's not all. You have 10 plan options to choose from, flexible death benefit payout options, and even the choice of availing survival benefits!

Get all this and more under one term insurance plan.

Know more

ABSLI Guaranteed Milestone Plan (UIN: 109N106V10) is a non-participating traditional insurance plan. All terms & conditions are guaranteed throughout the policy term. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws. An extra premium may be charged as per our then existing underwriting guidelines for sub-standard lives, smokers or people having hazardous occupations etc. The insurance cover for the life insured (including minors) will commence on the policy issue date. For further details please refer to the policy contract. Tax benefits are subject to changes in the tax laws.
ABSLI DigiShield Plan (UIN: 109N108V06) is a non-linked non-participating individual pure risk premium life insurance plan.


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