Kathmandu. If a common citizen needs a loan for any purpose, he has to depend on cooperatives or banks and financial institutions. The process of taking a loan from a cooperative or bank and financial institution is long, complicated and money is not available immediately. In such a situation, the source that provides loans immediately (within an hour and a half) when needed is life insurance companies.
Life insurance companies are also providing large amounts of money to their insured as loans against the collateral of insurance policies. It is easier to take a loan from a life insurer than from other financial institutions. The principal of the loan taken against the collateral of an insurance policy does not have to be paid in regular installments. The amount of the installment for the principal is not even fixed.
Until the insurance period is completed, it is enough to pay only the principal amount as much as possible. For example, if an insured has taken a loan of Rs 1 lakh and there are 5 years left to complete the insurance period, he will continue to pay the principal amount as much as he can within the 5-year period. There is no obligation to pay Equal Monthly Installment-EAI (equal monthly installment) like in banks.
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## ##Benefits of Insurance Policy Security Loan
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## The insured gets many service facilities by availing the loan facility for insurance policy security. It is fast, easy and hassle-free. Benefits of the insurance policy loan facility:
1. Immediate loan availability
The insured can receive the loan amount from the life insurance company’s office within an hour of applying for an insurance policy loan. Once the application is registered by collecting all the documents and evidence, the insured does not have to wait at the insurance company’s office to receive the loan amount. The money is deposited in the bank account before reaching home, the insurer deposits the amount directly into the bank account online.
2. Fixed interest rate
## The interest rate for a loan given once by a life insurance company does not change throughout the loan tenure. Currently, the interest rate for insurance policy security loans in the life insurance market of Nepal ranges from 9 to 12 percent.
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##3. No need to pay regular installments
## The principal amount for the insurance policy loan does not have to be paid in regular installments. The insured is given the facility to repay the principal amount whenever he wants, by paying as much as he wants. But the principal amount must be paid within the insurance period.
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##4. Service fee free
## Banks or cooperatives charge a service fee when providing loans. You do not have to pay a single cent of service fee when taking a loan from a life insurance company.
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##5. Short-term consumption
## This is a great facility if you need a loan for a short period of time, i.e. for a day, a week, a month, three months, six months or a year. Even if you want to repay the principal of the loan taken today in full tomorrow, you can do so, you can repay the entire principal in one lump sum by paying only one day’s interest. You do not have to pay any fees, commitment fees, or penalties for this.
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##Disadvantages of Insurance Policy Secured Loans
## Along with the advantages of insurance policy secured loans, there are also some disadvantages. If the insured takes simple precautions while availing such a loan facility, it is easy to avoid disadvantages or losses.
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##1. Cyclical interest rate
## Although the interest rate on the loan provided by life insurance is fixed, it is an interest rate that increases semi-annually. That is, the insured must pay the interest amount of the loan every 6-6 months. If not, he will have to pay interest on the interest as well as the principal. Therefore, one should not forget to pay the interest regularly after getting clear information about the interest amount and the due date.
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##2. Principal burden
## Unlike banks and financial institutions, not having to pay the principal amount in regular monthly installments is convenient, but it can also cause problems for the insured. The insured must pay the interest amount continuously, the principal amount remains the same.
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##3. Risk of insurance policy forfeiture
## If the insured is not careful and does not have the obligation to pay the loan principal regularly, if he misses or forgets to pay the interest amount once or twice, the interest will be added to the principal and the principal amount will increase. If the principal is added and exceeds the surrender value, the insurance policy will be forfeited immediately. Once the insurance policy is forfeited, the insured does not have to pay anything, the insurance policy goes into the possession of the life insurer, the insured does not receive any claim payment or service facilities. If it is lost, it will be zero.
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How to get a loan from a life insurance company?
## As per the provisions of the Life Insurance Policy Directive 2079, the insured can avail a loan against the security of a life insurance policy eligible for surrender value. For any term insurance policy to be eligible for surrender value, the insured must have paid at least 3 years of insurance premiums. And the insurance policy must have been purchased for a full three years. While providing a loan against the security of the insurance policy, the insurer must maintain a maximum of ninety percent of the surrender value and a minimum of 1 thousand rupees.
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##Procedures to be completed for insurance policy loan
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##1. Application for loan
## The insured must register an application for insurance policy loan at the nearest branch office of the life insurance company from which he purchased the insurance policy.
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##2. Documents required for application
## a) Original insurance policy: The insured must submit the original copy of the insurance policy to the insurer’s office for safekeeping to obtain the loan.
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## b) Citizenship certificate: The insured must submit the original citizenship certificate to the insurer’s office to prove his identity.
c) Bank Account Details: When applying for a loan, the insured must mention all the details related to his bank account in the application.
d) Photo: The insurer may request a recent photo of the insured to be attached to the policy loan application.
3. Surrender Value and Loan Amount
The insurer verifies the surrender value amount to be received by the insured through insurance software. The insured can take a loan of 80 to 90 percent of the surrender value.
4. Loan Agreement
## After the loan amount is confirmed, the insurance company’s employee takes the insured’s signature and signature on the loan agreement. Before signing the agreement, the insured should read all the terms and conditions of the loan, interest rate, etc. carefully and sign it. And he should also request a copy of the agreement for himself.
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## After the loan application is approved, the life insurance company keeps the original file of the underwriter in the office for security, and only provides the insured with a copy of the loan amount.
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##5. Loan interest and principal payment
## The insured can pay the loan interest and principal amount through a digital wallet, to the insurer’s bank account, or at the insurer’s branch or sub-branch office.
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##6. Insurance policy withdrawal
## After repaying the entire principal and interest of the loan, the insured can withdraw the original file of the insurance policy from the insurer.
