Loans

Among the ‘Conditions and privileges’ of a policy an important item pertains to ‘Loans’. Loans are generally granted as a percentage of surrender value. For example, policy loan on an in-force policy may be stipulated as 90% of surrender value and on a paid up policy it may be fixed as 85% of the surrender value. Policy loan is a privilege to the policyholder whereas it is an investment for the insurer under The Insurance Act, 1938. The rate of interest payable on a policy loan is fixed by the insurer from time to time. Loan is granted on the security of the policy, i.e. on the absolute assignment of the policy in favour of the insurer. If as per conditions of the Plan no loan is available on the policy that will be shown in the Conditions and privileges as “No loan will be granted under this policy”. Policy loan interest is generally compounding half-yearly.

Key words:

Conditions and privileges of policy

Loans

Surrender value

Absolute assignment