LIC. Three letters that carry enormous trust for millions of Indian families. Generations have grown up watching parents pay LIC premiums, knowing there was a financial safety net being built for the future. Today, LIC policy holders often have policies that have been running for 10, 15, 20 years — and they have quietly accumulated significant value.
What many policyholders do not realise is that their LIC policy can do more than just provide life cover and maturity benefits. A loan against LIC policy allows policyholders to unlock funds without surrendering the policy or losing its long-term benefits. But before you apply, here are the key points you need to understand.
Not All LIC Policies Are Eligible
This is the first and most important thing to know. Only specific types of life insurance policies qualify for a loan with Bajaj Finance — not all LIC policies.
Eligible policies are those that have built a surrender value over time: endowment plans, money-back plans, and Unit-Linked Insurance Plans (ULIPs). Pure term insurance plans — which offer only death cover with no savings component — do not qualify because they have no accumulated cash value.
So if you have an LIC endowment plan or a money-back plan that has been running for several years, you may well be eligible for a loan against life insurance policy. If you only have a term plan, this product is not available to you.
Surrender Value Is the Key Number
The loan amount you can access depends on the surrender value of your policy — the amount LIC would pay you if you cancelled the policy today. The higher the surrender value, the more you can borrow.
Bajaj Finance typically offers loans up to 90% of the surrender value. Loan amounts start from Rs. 10,000 and can go up to Rs. 25 crore, depending on the policy value. The minimum surrender value required to be eligible is Rs. 30,000 for ULIP-type policies.
The Lender in This Case Is Bajaj Finance, Not LIC
A common misconception is that the loan comes from LIC directly. When you apply through Bajaj Finance, all loan processing and disbursement is handled by Bajaj Finance Limited. LIC is the insurer; Bajaj Finance is the lender.
This means the terms, repayment structure, and loan against life insurance policy interest rate are governed by Bajaj Finance’s policies, not LIC’s direct policy loan terms. Always read the loan agreement carefully before proceeding.
Policy Assignment — What It Means
When you take this loan, your LIC policy is formally assigned in favour of Bajaj Finance. This is not the same as surrendering — your coverage remains active and your nominees are still protected. But it does mean that for the duration of the loan, Bajaj Finance holds a lien on the policy.
During this period, you cannot independently surrender the policy. You also continue to pay your premiums as usual — non-payment of premiums during the loan tenure can affect the policy.
Once the loan is fully repaid, the policy is reassigned back to you, and you have complete control again.
Interest and Repayment Structure
Interest rates for this facility depend on the policy type and Bajaj Finance’s prevailing terms. For ULIP policies in lock-in, interest accumulates and is paid as a bullet payment at the end of the lock-in period. For policies not in lock-in, interest is charged simply and paid monthly.
The loan against life insurance policy interest rate may vary based on the policy category, surrender value, and lender terms at the time of application. Processing fees are up to 3% of the loan amount (inclusive of applicable taxes), or up to Rs. 10,000 for ULIP policies. There is no conversion of principal into EMIs. You pay interest regularly and repay the principal separately.
Loan Processing Time
Once all documents are in order and the policy assignment is complete, Bajaj Finance typically processes and disburses the loan within approximately 24 hours. The documents you need are straightforward — KYC documents (Aadhaar or PAN), the policy document, and a cancelled cheque.
What Happens If You Cannot Repay?
If the loan is not repaid, Bajaj Finance has the right to surrender the policy and adjust the outstanding loan amount from the proceeds. Any surplus after loan repayment is returned to you. However, policy surrender means the end of your coverage and all future benefits — a significant loss.
This is why it is important to borrow only what you genuinely need and have a clear repayment plan before applying.
The Smart Use Case
A loan against your LIC policy makes the most sense when you need a lump sum for a short-to-medium term need — medical expenses, a child’s education, a business requirement, a one-time payment — and you do not want to break a policy that has been running for years.Your LIC policy has taken time and discipline to build. A loan against LIC policy lets you access its value without destroying what you have created. Use it wisely.
