Life Insurance Loans: Understanding Details of Life Insurance Loans
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The unpredictable nature of life gives rise to financial emergencies where we require immediate cash. In such crisis situations all you need is financial aid or a loan. But, do you know that you can avail loan against life insurance policy?
Financial crisis never comes with prior announcement and so most of the times we are unaware and unprepared for such situations. Often, we feel helpless when a sudden and immediate monetary need comes up in our life. Sometimes, the situation may be very critical, which prompts you to opt for an immediate loan from a financial institution. This is especially the case when you must clear a bill or something important within a brief time period. There are many financial institutions paying loans but they charge exorbitantly. So, what is the way out? In such a situation, you can avail a loan against the life insurance policy that you have purchased to secure your family.
There are some key benefits of availing a loan under your life insurance plan as compared to getting it from the regular financial institutions. If you want to get a loan from your term life insurance policy, you must read all the details here.
How Much Loan Can You Get under Your Life Insurance policy??
Can I take a loan on my life insurance and how much? – this is a question that most people would like to know. The amount received under the loan on life insurance policy depends on the accumulated amount of your fund. As and when the fund amount increases in any life insurance plan (whole or term insurance), it allows the insured to avail loans against the total amount. In case of loans offered under your life insurance policy, the amount that you receive is tax – free.
However, in this case the insurer cannot promise as to how much the fund value increases under your life term insurance policy and how fast. Hence, you are unaware or you cannot predict the availability of loan under your insurance. Besides, different insurers have different criteria in terms of how much fund amount is required to be able to get a loan under your insurance plan and how much fund can be availed as loan amount.
Also, you must remember that the loan that you avail does not subtract cash from your total policy fund. You just borrow from your insurer and use the life insurance policy fund value as security.
How to take a loan from life insurance and How Much of Loan Amount Do You Need to Repay?
The best thing or best feature of getting loans from life insurance policies is that the policyholder does not require to return it. And this is a feature that serves the purpose of many people, especially during crisis situations.
Even if you want to repay a portion of the loan or the entire amount of loan, you can choose to repay in the form of periodic principal repays taking into consideration your yearly contribution of interest. So, you may simply pay yearly interest or deduct the interest from your entire sum.
As such, there is an element of interest involved in life insurance loans similar to all kinds of loans. Depending on the insurer, the interest can either be fixed or variable. It is better to repay a loan if you are capable because in case you do not repay the complete loan amount before death, the insurer might lower face value on your policy while paying the death benefit later on at the time of settling the claim. This might lower the accumulating interest to a significant level and lower the benefit amount as well.
When to Choose a Life Insurance Loan?
You can choose a life insurance loan under several scenarios such as:
For fulfilling immediate fund requirements
Borrowers who look for quick personal loans against life insurance have a common concern and that is regarding the time needed to get the fund in your hand. Most of the financial institutions that you seek for a loan will take time to check your application and would also need a collateral to act as security against your loan. Further, it generally takes a few days for the fund to finally reach you. On the contrary, with life insurance you can get loans readily and quickly to fulfil your immediate cash requirement.
If Your insurance Policy is About to Lapse
If you are in a situation where you couldn’t pay the premiums of your term insurance plan. In such a case, you may procure a loan on the cash value of life insurance from your policy and that way it will stay active as long as your loan amount is less than the death benefit amount.
If You want to Avoid Higher Rate of Interests
f you go for the regular traditional loans, you are sure to pay a high rate of interest. So, to avoid such high rates, you may seek a loan on your policy. Further, there is no particular duration of loan repayment and you can get competitive rates of interest on life insurance loans.
Loan on policy is a loan amount that can be availed using the cash value of your life insurance policy as collateral. There are no restrictions on where you use this money and you also don’t have to follow a predetermined repayment schedule.
Yes, you can take a loan against your life insurance plan in case you meet with a sudden financial crisis. There are many financial institutions who pay easy loans when you offer a life insurance policy as a collateral.
It is the insured, in most cases, whose life is covered under a term life insurance plan. This is the person who has to undergo any medical tests etc. if required to buy the loan and he/she also pays the premiums.
When a policyholder uses his loan amount cash value under his/her policy, he does it for procuring a policy loan. And since all loans levy an interest on the amount, the loan offered by your life insurance policy also charges interest on the policy loan.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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There are plenty of life insurance myths that people have regarding and they need to be dispelled.
It is thanks to these wrong ideas that people fail to see insurance as what it truly is – a vital part of your financial planning. You need to understand that these policies are an important constituent of your financial contingency plan – one that would protect your near and dear ones financially in the future. It would make sure that they do not experience a shortage of funds when they need them in the future. In certain cases, it can also act as a source of income following retirement as well as ailments and accidents that render you unable to work and earn.
When Rajesh wanted to purchase a new life insurance policy for his family, many of his friends advised him to understand the claim settlement ratio of a company. Although he didn’t understand what claim settlement ratio is, he knew that it was relevant in making the decision to buy a policy from a particular company. He therefore researched about it, compared plans and at last, he bought a policy from a company that had a high claim settlement ratio.
Buying a new online term insurance plan involves researching on various things like cover, exclusions, add-ons, and one should know about them in detail. For example, Tata AIA is a leading insurance company that offers a wide range of insurance plans in market at very competitive prices. However, being competitive in pricing alone is not enough, it is necessary to understand the company’s claim settlement ratio (CSR) before purchasing a plan.
Saral Jeevan Bima Yojana is a new standardized life insurance policy that has been brought about by the IRDAI (Insurance Regulatory and Development Authority of India) so that people can have an economical life insurance policy.
This is a non-participating and non-linked individual pure risk premium life insurance policy. In this case, your nominee would receive the sum assured if you pass away while you are covered by the policy. In its annexure, the policy states some benefits and riders. Apart from that, it does not offer any other benefit, rider, variant, or option. The only exclusion in the policy is that of suicide.
The Indian government offers various life insurance plans to secure the financial future of people. The PLI or Postal Life Insurance is one such government policy that monetarily protects the lives of your family members at an economical postal interest.
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