Most of us have a life insurance policy tucked somewhere — bought a decade ago, premiums paid dutifully every year, maturity benefits awaited patiently. For many families, the insurance policy is the one financial product that never gets touched. It just sits there, year after year, quietly building value.
What most policyholders do not realise is that their policy is not just a safety net for the future. It can also be a source of funds in the present, without being surrendered or giving up coverage. This is possible through a loan against policy — and before you apply, there are a few things worth knowing clearly.
What Is a Loan Against Policy?
A loan against policy is a loan where your life insurance policy acts as collateral. The policy is assigned in favour of the lender — in this case, Bajaj Finance — and you receive a loan against the surrender value of the policy. The policy does not lapse. Your coverage continues. And when you repay the loan, the policy is reassigned back to you.
Which Policies Are Eligible?
Not all insurance policies qualify. Bajaj Finance offers loans against Unit-Linked Insurance Plans (ULIPs) and endowment policies that have built up a surrender value. Pure term insurance plans — which provide only death cover and have no savings or investment component — do not qualify because they have no surrender value.
Approved policy providers include names like Bajaj Allianz Life, ICICI Prudential Life, TATA AIA Life Insurance, Reliance Nippon Life, Aviva Life Insurance, and others. It is important to check the approved list before applying.
Surrender Value — The Number That Matters Most
The surrender value is the amount your insurer would pay you if you terminated the policy today. It is what the loan is calculated against. Bajaj Finance typically offers loans up to 90% of the surrender value, and loan amounts can go up to Rs. 25 crore.
The minimum surrender value required to be eligible varies by policy type. For ULIP policies, the minimum is Rs. 30,000. For endowment policies, refer to the current criteria on the Bajaj Finance website.
What About Interest and Repayment?
LIC policy loan interest rate is charged on the amount you withdraw, not on the entire sanctioned limit. For policies that are in a lock-in period, interest accumulates and is paid as a lump sum when the lock-in ends. For policies not in lock-in, interest is charged on a simple basis and paid monthly.
Processing fees are up to 3% of the loan amount (inclusive of applicable taxes), or up to Rs. 10,000 for ULIP policies, whichever applies. Prepayment terms are flexible and foreclosure is allowed without heavy penalties.
An important note — the principal of the loan cannot be converted into EMIs. You service interest monthly and repay the principal separately when you have the funds.
Policy Assignment — Understand This Clearly
When you take a loan against your insurance policy, the policy is formally assigned in favour of Bajaj Finance. This is a legal arrangement where your policy rights temporarily transfer to the lender. During this period, you cannot independently surrender the policy or change the beneficiary structure.
Once the loan is fully repaid, Bajaj Finance assigns the policy back to you. If you choose to close the loan by surrendering the policy, the insurer transfers the surrender value to Bajaj Finance, which adjusts the loan amount and refunds any surplus to you.
What If You Cannot Repay?
If repayment is not made, the lender can recover the outstanding amount from the policy's surrender value. In extreme cases, this can lead to the policy lapsing or maturity benefits being reduced. The safest approach is to borrow only what you genuinely need and have a clear repayment plan.
Loan Processing Time
Bajaj Finance typically processes loans against insurance policies within approximately 24 hours of document submission. You need basic KYC documents, the policy document, and a cancelled cheque. The entire process can be completed online.
The Bottom Line
A loan against insurance policy is a smart, low-documentation, relatively affordable way to access funds in an emergency — without surrendering a policy you have built over years. It is best suited for short-to-medium term needs. Understanding the surrender value, policy assignment implications, and repayment structure before you apply will help you use this tool wisely.
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