A loan against an LIC policy lets you borrow against the surrender value of an eligible traditional life-insurance policy — typically up to 85-90% of that surrender value at around 9-10% interest as of 2026. The policy is assigned to the insurer as security, your cover stays active while you repay, and you usually need at least 3 years of premiums paid to qualify.
This is one of the cheapest secured loans available to a salaried or self-employed Indian household, because the lender already holds an asset (your policy's guaranteed value) and faces almost no default risk. Below, we break down exactly which policies qualify, how the borrowing limit is calculated, what the interest really costs, and — importantly — what happens if you cannot repay.
What is a loan against an LIC policy?
A loan against an LIC policy is a secured loan where your life-insurance policy acts as collateral. You don't surrender or cancel the policy. Instead, you assign it to LIC (or to a bank/NBFC that offers the facility), they advance you money against its built-up cash value, and you keep paying premiums so the cover continues. Once you repay the loan plus interest, the assignment is reversed and the policy is fully yours again.
The key word is surrender value — the guaranteed cash amount your policy has accumulated. Only policies that build a surrender value can be used. That's why the eligibility hinges on the type of policy you hold, not just on you as a borrower.
Which LIC policies are eligible (and which aren't)
| Policy type | Loan against it? | Why |
|---|---|---|
| Endowment plans | ✅ Yes | Builds guaranteed surrender value |
| Money-back plans | ✅ Yes | Builds surrender value; loan capped on it |
| Whole-life plans | ✅ Yes | Long-term cash value accrues |
| Term insurance (pure protection) | ❌ No | No surrender/cash value — pays only on death |
| ULIPs (unit-linked) | ⚠️ Usually no via this route | Market-linked; partial withdrawal feature instead |
In short: traditional, with-profit savings policies (endowment, money-back, whole-life) qualify because they accumulate a surrender value. Term plans are pure risk cover with no cash value, so there is nothing to lend against. ULIPs are market-linked and generally use their own partial-withdrawal mechanism rather than a policy loan.
Eligibility criteria in 2026
Because the loan is backed by your own policy, the qualification bar is far lower than for an unsecured personal loan. Income proof and credit history matter much less; the policy does most of the work. Typical conditions:
- Policy must have run 3+ years with premiums paid up to date — this is when a meaningful surrender value exists.
- Eligible plan type — an endowment, money-back, or whole-life policy that has acquired surrender value (term and most ULIPs are out).
- Policyholder is the borrower — you must be the owner of the policy and usually 18+.
- Policy is in force / fully paid-up, not lapsed without value.
- Free of prior assignment — it shouldn't already be pledged elsewhere.
Because LIC lends against its own guaranteed liability, it generally does not run a hard credit-bureau check the way an unsecured lender does. If you borrow this same loan from a bank or NBFC against your LIC policy, that lender may check your profile. Either way, it's worth knowing where you stand — you can see your score free on /credit-score before you apply, with no impact from checking.
How much can you borrow? The limit explained
Your borrowing limit is a percentage of the surrender value, not the sum assured or the maturity value. As a rule of thumb in 2026:
- From LIC directly: roughly 85-90% of the surrender value for an in-force policy (lower — often around 80-85% — for a paid-up policy that you've stopped funding).
- From a bank/NBFC: typically 85-90% of surrender value as well, though the exact percentage and minimum/maximum loan size vary by lender.
So if your endowment policy has a surrender value of ₹4,00,000, you might be able to draw roughly ₹3,40,000-₹3,60,000. The longer the policy has run and the more premiums paid, the larger the surrender value — and therefore the bigger the loan.
Quick mental model: sum assured ≠ what you can borrow. A ₹10 lakh sum-assured policy that's only 4 years old may have a surrender value of well under ₹1 lakh, so the loan is a fraction of the cover. Surrender value grows as the policy matures.
To see how an EMI on the amount you'd actually draw fits your monthly budget, run the figures through our EMI calculator.
Interest rates: why this loan is cheap
As of 2026, a loan against an LIC policy generally costs around ~9-10% per annum, though the exact rate varies by lender and by policy, and is reviewed periodically. That's typically well below unsecured personal-loan rates because the lender's risk is minimal — it holds an asset whose value it controls.
A few mechanics worth understanding:
- Interest is usually charged half-yearly on the outstanding amount when you borrow from LIC, and is often simple interest rather than the reducing-balance EMI structure of a bank loan.
- Bank/NBFC versions may be structured as an overdraft or a term loan against the policy, sometimes linked to an external benchmark (EBLR — the External Benchmark Lending Rate, usually repo-linked) so the rate can reset when the RBI changes the repo rate at the next reset date.
- 18% GST applies to the processing fee and other charges on a bank/NBFC loan — not to the loan principal or the interest. (A direct LIC policy loan typically has minimal or no processing fee.)
We won't quote a single "current" rate, because it moves with policy type, lender, and benchmark resets — always confirm the live figure with the lender before signing.
LIC policy loan vs other quick-cash options
| Feature | Loan against LIC policy | Personal loan | Gold loan |
|---|---|---|---|
| Security | Your policy (assigned) | None (unsecured) | Physical gold |
| Indicative rate (2026) | ~9-10% | Higher, ~11%+ varies | Mid-range, varies |
| Credit score impact | Low (LIC route) | Hard inquiry | Low |
| How much | ~85-90% of surrender value | Based on income/FOIR | % of gold value |
| Cover/asset status | Insurance stays active | N/A | Gold pledged |
If you're weighing this against an unsecured option, our deep-dive on the gold loan vs personal loan trade-off and the credit card vs personal loan comparison cover the same secured-vs-unsecured logic that applies here.
How to apply: step by step
- Check your surrender value — find it on your latest policy statement, the LIC portal, or by asking your branch/agent. This sets your ceiling.
- Confirm eligibility — policy 3+ years old, premiums paid, eligible plan type, not already assigned.
- Choose the lender — LIC directly (simplest, often cheapest) or a bank/NBFC that offers loans against LIC policies (useful if you want an overdraft structure).
- Submit the policy + KYC — original policy document, ID/address proof, a deed of assignment, and bank details for disbursal. The policy is assigned to the lender.
- Receive funds — once assignment is registered, the amount is disbursed, often within a few working days.
- Repay on your terms — pay interest (and principal) as scheduled; on full repayment the assignment is reversed and the policy returns to you.
Want a free, no-obligation read on your overall borrowing options across loan types? Start a free eligibility check on /apply — it's a soft credit pull with no impact on your score, and it helps you compare a secured route like this against other products before you commit.
What happens if you cannot repay?
This is the part borrowers most often misunderstand. You will not be sent to recovery agents the way an unsecured defaulter might be. Instead, the consequences flow through the policy itself:
- Interest keeps accruing on the outstanding loan and is added to the balance you owe.
- The loan + accrued interest is recovered from the policy's value. If you stop paying and the outstanding amount approaches the surrender value, LIC can foreclose the policy — i.e., terminate it and adjust the dues against its value.
- At a maturity or death claim, any unpaid loan plus interest is deducted first, and only the balance is paid out to you or your nominee. So an unpaid loan quietly shrinks the very benefit you bought the policy for.
The practical takeaway: because your own asset is on the line, the worst case is losing the policy's accumulated value and protection, not a credit-collections ordeal. Still, foreclosure means you lose cover and surrender value, so treat repayment seriously. Borrow only what you genuinely need against the policy, and build a small buffer so a missed interest cycle doesn't snowball. A broader financial plan — with an emergency fund — keeps you from leaning on policy loans for routine cash gaps in the first place.
Is a loan against an LIC policy right for you?
It's a strong fit when you:
- Hold a mature endowment/money-back/whole-life policy with real surrender value.
- Want low-cost, quick funds without a hard credit check or income scrutiny.
- Are confident you can clear the interest and not erode your eventual payout.
It's a poorer fit when your policy is young (tiny surrender value), when you only hold term insurance (no value to lend against), or when you'd be better served by a different product entirely. Compare structures and lenders on /compare and /lenders before deciding.
Disclaimer: Interest rates, charges, and rules vary by insurer/lender and change over time — always verify the current terms directly with the lender before borrowing. RupeeQuik connects users to RBI-regulated lending partners and does not itself lend.
Frequently Asked Questions
Can I take a loan against a term insurance policy?
No. Term insurance is pure protection with no surrender or cash value — it only pays out on death during the term. Since there's nothing to lend against, term plans are not eligible. Only traditional savings policies (endowment, money-back, whole-life) that build a surrender value qualify.
How much loan can I get against my LIC policy?
Typically 85-90% of your policy's surrender value (often a bit less for a paid-up policy you've stopped funding). It's based on surrender value, not the sum assured — so a high-cover but young policy may yield only a modest loan. Check your current surrender value first to estimate your ceiling.
Does taking a loan against my LIC policy affect my credit score?
Borrowing directly from LIC generally does not involve a hard credit-bureau inquiry, so the impact is minimal. If you take the loan through a bank or NBFC against your policy, that lender may run a check. You can see where your score stands for free at /credit-score before applying.
What is the interest rate on a loan against an LIC policy in 2026?
As a guide, around ~9-10% per annum, but it varies by lender, policy type, and benchmark resets and is reviewed periodically — so always confirm the live rate with the lender. It's typically cheaper than an unsecured personal loan because the policy secures the debt.
Does my life cover continue while the loan is outstanding?
Yes. The policy is assigned, not surrendered, so your insurance stays active as long as you keep paying premiums. However, if you have an unpaid loan when a claim arises, the outstanding amount plus interest is deducted from the payout before your nominee receives the balance.
What happens if I never repay the loan against my LIC policy?
Interest keeps accruing and is added to your dues. If the outstanding amount approaches the surrender value, LIC can foreclose (terminate) the policy and recover the loan from its value — meaning you lose both the cover and the accumulated savings. At maturity or on a claim, any unpaid loan is deducted first.
