Loans Against Insurance Schemes
We all know that the primary purpose of taking insurance is to secure things and get reimbursement for damage occurred. In the case of life insurance, it is more of securing the family after the death of that particular person. But that is not the limit. There is a lot that can be done with insurance schemes. Most of the Christmas Loans Glasgow is taken against the insurance that the individual has. In this article, we will see in detail about loan against insurance schemes.
Eligibility of policy
The first and foremost thing that you need to confirm is whether the policy that you have taken is eligible for loans. Not all insurances are eligible for loans. For example, you can take a loan against life insurance, but it is not possible to take a loan against term insurance. The limitation is because the term plans do not have any value after they expire.
The next thing that you need to consider is the loan amount that you will receive from the bank or from the insurance firm. Generally, the loan amount that you will receive is the surrender value. For traditional plans that loan can be up to 85 to 90% with returns guaranteed. The insurance policy will be assigned to the lender once the loan amount is decided. Whatever rights that the borrower has on the loans in now completely transferred to the lender. In most of the countries, the loan amount against insurance is not taxable.
The interest that will be charged for the loan against insurance is entirely dependent on the premium that has been paid and the number of premiums that have been already paid. The premium paid and the number of premiums paid is inversely proportional to the interest rate. When you are getting the loan against insurance policies, the banks tend to link the interest to the base rate. It is because these loans are considered as overdraft by the banks. It will be higher than normal loans. The interest rate will be around 10 – 14 percent. It will vary according to the tenure of the loan.
The person who holds the policy should contact the insurance company to get the details about the documents that they need to provide. A form has to be filled and submitted. The original copy of the insurance must be submitted along with the identity proof. A document stating that the benefits from the policy will go to the lender during the loan tenure has to be signed and submitted. This document will be collateral until the loan is repaid.
The loan should be repaid during the term of the policy with the specified interest. If there are any mishaps like death during the repayment period, the pending amount will be deducted, and the rest will reach the nominee. It is essential to repay the loan with a specific time. If not the interest rate will increase. It would result in paying tax for the excess amount. If the limit reaches the surrender value, then the policy will be terminated.