Page 48 - Insurance Times January 2023

How to repay: You can repay the loan as equated monthly Should you borrow? Borrowing money from a life insurance
instalments (EMIs) in part or entirely at any time before the policy has benefits like a reasonable interest rate compared
policy matures. Repayment terms may vary from lender to to a personal loan interest rate, a quicker approval process
lender. Besides, you must pay all dues before the policy and no fixed instalments for repaying the loan. Sharma said,
term ends and check whether the lender applies any pre- “The advantage of a policy loan is that it helps the
payment charges. policyholder to finance its immediate liquidity needs while
keeping the life insurance policy in force. However, you
While paying loan EMIs, you will also have to pay all must consider policy loans as a temporary option to get
premiums on time during the policy term so that policy liquidity. Also, you must repay it as soon as surplus money is
doesn’t lapse. Ashwini Bondale, Senior Vice President, ICICI available to reap the original benefit from the policy."
Prudential Life Insurance, said, “If you cannot repay the loan,
the life insurer/lenders will offset the outstanding loan Adding to it, Bondale said, “Loans against policies are
amount against the maturity benefit or surrender value as available to insured at competitive interest rates compared
the case will be. In cases where the outstanding loan to other routes of seeking loans." However, Raman said, “If
amount exceeds the policy surrender value, the insurer can you have borrowed money against your life insurance policy,
foreclose the policy." then in the case of your unfortunate demise, the insurer will
clear off the unpaid loan amount from the death benefit due
However, if the policyholder has paid all due premiums, the to your beneficiaries. Your beneficiaries will, therefore,
policy cannot be foreclosed. Sharma said, “For such policies, receive only a partial death benefit due to them. Another
the amount paid on death or maturity will be the death risk is that the policy will auto-terminate if the outstanding
benefit or guaranteed maturity benefit reduced by the loan amount with accumulated interest exceeds the policy’s
outstanding loan amount, respectively." surrender value." One must remember that on surrender,
the policy terminates, and, in that case, you cannot take
Charges: When you take a loan against the policy from a the benefit of insurance coverage.
lender, you will have to pay an interest rate between 10%
and 15%. The lender may also charge processing fees up to Point to note: In case of any emergency, you must consider
Rs. 2000 (inclusive of GST), foreclosure or pre-payment, and looking at other financial instruments to raise funds because
bounce charges. Besides, lenders can apply penal interest a life insurance policy is only to financially secure your family
(around 2%) and annual maintenance charges. in the unfortunate event of your death. (Source: Mint)

Sweet Little Insured House

Dr. K. Raja Gopal Reddy
Ph.D, FIII, FCII, FLMI, Chartered Insurance
Practitioner, Principal Officer
Topspot Insurance Broking Private Ltd.
(commercially known as 'insurancepe')

42 January 2023 The Insurance Times