• Granting Loans
Loans may be granted under most of life insurance policies.
For loan, a policy need not be a compulsorily in – force for full sum assured.
Rules regarding permissibility of loan vary from insurer to insurer.
However, few examples of non availability of loan are –
I. Policies like term assurance and annuity policies. However, loans are granted under whole life policies.
II. Some insurers don’t extend the loan facility under money back policies
III. Children’s deferred assurance policies during the deferment period.
Loans can be granted up to 80% or 90% of surrender value.
Policy is got assigned absolutely in favour of the insurer at the time of granting loans.
Assignment in favour of the insurer for the purpose of loan does not cancel existing nomination.
Policy document has to be handed over to the insurer at the time of taking loan.
• Loan Interest
Policy loan is interest bearing. Interest is payable as per terms of loan sanction.
With most of the insurers, interest on loan is payable at half – yearly intervals. Due date for interest payment is generally synchronised with the due date of premium payment.
The period between the date of loan and the first due date of interest may be less than 6 months. If so, that is called broken period interest.
There is no compulsion for payment of loan interest. It may go on accumulating. Under regular premium paying policy, SV keeps on increasing and, therefore, loan amount together with accumulated interest does not exceed the SV at any point of time.
• Repayment of Loan
There is no provision for prior commitment of loan repayment.
Loan may be repaid in full or in part at any time during the currency of the Policy.
If not repaid, it remains a debt on the policy and recovered with the interest by –
I. Deducting from the claim amount or
II. Deducting from subsequent loans sought for and sanctioned under the policy.