Irdai mandates policy loan feature for all Life insurance savings products
The Insurance Regulatory and Development Authority of India (Irdai) has made a significant announcement that is set to benefit policyholders across the country. In a recent circular, the regulatory body declared that all Life insurance savings products must now offer a policy loan feature to assist policyholders with their financial needs. This move is aimed at providing policyholders with greater flexibility and access to funds when they need it most.
The master circular issued by Irdai stated that the facility of partial withdrawal under pension products is now allowed. This will enable policyholders to meet specific financial needs for important life events such as higher education or marriage of children, purchase or construction of residential property, medical expenses, and treatment of critical illnesses. This decision is a welcome one for policyholders who may require financial assistance during challenging times.
In a statement, Irdai emphasized that this move is part of a series of reforms aimed at putting the interests of policyholders at the forefront. By introducing this policy loan feature, Irdai hopes to create a conducive environment that will spur innovation, enhance customer experience, and ultimately increase customer satisfaction. This decision is a positive step towards ensuring that policyholders have access to the financial support they need when they need it most.
The circular also allows for partial withdrawals under pension products, providing policyholders with additional flexibility and options when it comes to managing their finances. This feature will undoubtedly be welcomed by those who may need to access funds for specific purposes without having to surrender their entire policy.
One of the key aspects of this new policy is the ability for policyholders to take out loans against their insurance policies. This allows policyholders to borrow money by pledging their insurance policy as collateral. However, it is important to note that this facility is currently only available for traditional insurance policies such as money back and endowment plans, which combine savings and life cover elements.
To qualify for a loan using an insurance policy, the policy must have a surrender value. Typically, the approved loan amount falls between 85% and 90% of the policy’s surrender value. This means that policyholders can access a significant portion of the value of their policy to meet their financial needs.
Loans taken out against insurance policies often come with more favorable terms compared to other types of secured loans or personal loans. The interest rates are typically lower, which can result in significant savings on interest payments over the life of the loan. Additionally, the repayment tenures are flexible, giving borrowers the option to make interest-only payments if needed.
Another benefit of these types of loans is that borrowers have the option to deduct the loan amount from the insurance claim when it is settled. This can help alleviate the burden of repayment and make it easier for borrowers to access the funds they need. Overall, loans against insurance policies can be a cost-effective and convenient option for those in need of financing.
Before applying for a loan against an insurance policy, it is important to consider eligibility requirements and the application process. Policyholders should ensure that their policy has a surrender value and can be assigned in favor of the lender. The application process typically involves contacting the insurance company or a bank that provides loans secured by insurance policies. Key institutions such as LIC, HDFC Bank, and State Bank of India (SBI) offer such services.
Once the application is approved, the loan amount, typically between 85% and 90% of the surrender value, will be disbursed. This process ensures that policyholders have access to the funds they need in a timely manner, allowing them to meet their financial obligations and goals.
In conclusion, the decision by Irdai to mandate a policy loan feature for all Life insurance savings products is a positive development for policyholders in India. This move will provide policyholders with greater flexibility and access to funds when they need it most, ultimately enhancing their overall financial well-being. By introducing this feature, Irdai is taking a proactive step towards ensuring that policyholders have the support they need to navigate life’s financial challenges with confidence.