Kathmandu. After the interest rates on loans given to general consumers by banks and financial institutions have dropped to single digits, the pressure to take loans from life insurance companies has started to decrease in recent times.
Financially conscious insureds have started choosing commercial bank loans after getting loans from banks at half the interest rate of life insurance companies. Only when they can repay the principal and interest of the insurance company by taking a loan from a bank, the insured has got the opportunity to save significantly on interest. Conscious consumers who have purchased insurance policies of a single premium nature have started taking loans from commercial banks after repaying the loan from the insurance company to take advantage of the interest rate difference.
Commercial banks are currently providing loans at an interest rate of 7 percent. The interest rate of life insurance companies remains at 9 to 10 percent. Two years ago, after the interest rate of commercial banks’ loans exceeded 14 percent, consumers were attracted to the loan facilities of insurance companies. At that time, the interest rate of insurance companies’ loans was only 9 to 10 percent.
Stating that the demand for life insurance loans had increased abnormally due to the high interest rates of commercial banks, the life insurance companies, in consultation with each other, increased the interest rate of life insurance loans by 1 percentage point to 10 to 12 percent. They had increased the interest rate of loans by 1 percentage point in the month of Kartik, 2079 BS. The life insurance companies had restored this interest rate to the previous interest rate only after the month of Jestha, 2080 BS. The Professional Insurance Agents Association of Nepal had to put pressure on the board of directors of life insurance companies to maintain the previous interest rate.
A CEO of a life insurance company said that the number of people taking loans from insurance companies by pledging insurance policies as collateral has decreased due to the decline in bank interest rates. “However, the decline in bank interest rates has not had a significant impact on the loans taken by the insured from insurance companies,” said the CEO, “because insurance companies provide loans immediately by pledging insurance policies as collateral. Insurance helps a lot when money is urgently needed.”
Om KC, central general secretary of the Professional Insurance Agents Association of Nepal, said that the decline in bank loan interest rates could lead to a decrease in the number of loans taken from insurance companies using insurance policies as collateral. ‘The interest rate for insurance policy collateral loans has been 10 percent in Nepal Life since 2060-61. It may be 1-2 percent higher or lower in other companies,’ he said. ‘That is why customers who have reduced bank interest rates may be attracted to take loans from banks.’
KC said that the loans provided by insurance companies by pledging insurance policies will not decrease much due to the difference in bank interest rates. ‘Because loans can be obtained within half an hour by pledging insurance policies,’ he said. ‘There are many processes to take loans in banks. It may take a few days. Therefore, in cases where money is urgently needed, the insurance company is the place where the customer can take a loan by pledging his insurance policy.
##This is how you get a loan from an insurance company
##
##
Any life insurance policy has a condition stating after how long the surrender value of the insurance policy will be received. If you also need a loan against the collateral of an insurance policy, read the terms and conditions mentioned on the second page of the insurance policy to get information about the surrender value period for the life insurance policy issued in your name.
As per the provisions mentioned in the Insurance Policy Guide, the surrender value of any insurance policy (except short-term and term) issued after the date of implementation of the guide is available only after 3 years from the date of issue of the insurance policy. In addition, at least 3 years of premium installments must be paid.
The insured can get a loan against the collateral of the insurance policy at any time, provided that the conditions and time period required to obtain the surrender value are fulfilled. Such loans are provided by insurers within one to two hours.
What documents are required?
To take a loan against an insurance policy, the insured or policyholder concerned needs the original insurance policy, citizenship certificate and a bank check. Carrying these documents, the insured should apply to any branch of the life insurance company where he has taken out life insurance. Some insurers have also provided the facility to register the application from the insurer’s website.
After doing this, the insurance employee calculates the surrender value and informs the amount of loan available, and the insured can take the loan within the limit of the amount he can take. A loan of 80 to 90 percent of the surrender value can be taken against the collateral of the life insurance policy he has purchased.
After submitting the loan application form, the insured must affix a seal to the loan application. The insurer also keeps the original insurance policy as proof of the loan and returns it only when the loan is repaid.
##Interest must be paid every 6–6 months
##
Since interest is calculated semi-annually on life insurance loans, interest must be paid every 6–6 months to avoid penalties. The principal amount of the loan can be repaid in any installments at any time during the insurance policy term. In insurance loan, there is no obligation to pay a fixed amount of principal every month, unlike in banks. Some life insurers have also provided the facility to pay the principal and interest of the insurance loan through digital wallets.
