Introduction
In times of financial need, most people think about taking a personal loan, credit card advance, or even borrowing from friends and family. However, there’s a lesser-known yet highly effective option available to individuals who own certain types of insurance policies — the insurance loan.
An insurance loan allows policyholders to borrow money against the cash value of their insurance policy. This method not only offers quick access to funds but also comes with lower interest rates and minimal paperwork compared to traditional loans. Let’s explore how insurance loans work, their benefits, and whether they are the right choice for you.
What Is an Insurance Loan?
An insurance loan is a loan that is secured using the cash value of a life insurance policy — usually a whole life or endowment policy. Unlike term insurance, which offers no maturity value, these policies build cash value over time. The policyholder can borrow against this cash value from the insurance company itself.
The best part? You don’t need to go through credit checks, long approval processes, or high interest rates like you do with a personal loan.
Who Can Apply for an Insurance Loan?
You can apply for an insurance loan if you:
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Own a whole life or endowment insurance policy
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Have paid enough premiums to build up sufficient cash value
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Meet your insurance company’s minimum loan requirements
Note: Not all insurance policies qualify. Term life insurance policies typically do not offer a loan facility because they don’t accumulate any cash value.
How Does It Work?
Here’s a step-by-step breakdown of how insurance loans work:
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Request Loan Against Policy: Contact your insurance provider to check how much cash value you’ve built and what amount you are eligible to borrow.
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Submit Documents: Usually, minimal documents are required. Most companies only need your ID, policy number, and a loan request form.
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Loan Disbursal: If eligible, the loan is processed quickly, often within 3 to 7 days.
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Interest Calculation: Interest is charged on the loan, but it’s usually lower than personal loan rates (around 7–10% annually).
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Repayment Options: You can repay the loan anytime. If not repaid, the loan amount (plus interest) will be deducted from the maturity or death benefit.
Key Benefits of an Insurance Loan
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No Credit Check: Since the policy is the collateral, your credit score is not a factor in approval.
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Quick Disbursal: Funds are usually released faster than personal or bank loans.
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Lower Interest Rates: The interest rates are comparatively low, making repayment easier.
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No Income Proof Required: No salary slips, no bank statements — just your policy details are enough.
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Flexible Repayment: There’s no strict EMI schedule; you can pay as you like or even let it be adjusted at policy maturity.
What Are the Risks?
While insurance loans offer convenience, there are a few risks to be aware of:
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Unpaid Loans Reduce Benefits: If you don’t repay the loan, the amount will be deducted from your policy’s maturity or death benefit.
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Policy Lapse Risk: If the loan plus interest exceeds your policy’s value, the policy could lapse.
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Limited Loan Amount: You can only borrow up to a certain percentage (typically 80–90%) of your policy’s surrender value.
Real-Life Example
Let’s say Ali has a whole life policy worth PKR 1,000,000 with a surrender value of PKR 600,000. He needs PKR 400,000 for his child’s education. Instead of applying for a high-interest personal loan, he requests a loan against his policy. The insurance company approves the loan with an annual interest of 8%.
Ali receives the amount within 5 days, uses it for education, and repays it over the next 18 months — all without any heavy documentation or stress. That’s how convenient an insurance loan can be.
Top Companies Offering Insurance Loans in Pakistan
Some well-known insurance providers that offer insurance loan facilities include:
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State Life Insurance Corporation
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EFU Life Assurance
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Jubilee Life Insurance
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Adamjee Life Assurance
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Pak-Qatar Takaful
Each provider may have different terms, so it’s important to check directly with them for exact procedures and loan amounts.
Conclusion
Insurance loans are an excellent option for those who have invested in whole life or endowment policies and need immediate cash without going through lengthy processes. Whether it’s a medical emergency, child’s education, or urgent business need, borrowing against your insurance policy can be a smart and safe move — as long as you understand the terms.
Always speak to your insurance provider and financial advisor before making a decision. And remember, this is your money working for you — wisely and efficiently.