New Delhi: The Insurance Regulatory Development Authority of India (Irdai) in a circular issued on Thursday asked life insurers to cease accepting loan repayments against insurance policies made via credit cards. The decision is effective immediately and applies to all life insurers.
In August last year, the Pension Fund Regulatory and Development Authority (PFRDA) made a similar decision to discontinue credit card contributions for tier-2 accounts of National Pension System (NPS).
Loan facilities can be provided by life insurance policies such as endowment, money-back, or whole-life policies. However, term insurance policies and unit-linked insurance policies (ULIPs) are not eligible for loans as they do not have a cash value at maturity. Moneylenders can offer loans up to 90% of the surrender value of an insurance policy, using the policy’s cash value as collateral.
To apply for a loan, borrowers must submit a loan application form, a copy of the insurance policy, and a signed agreement to the lender. Borrowers can take loans from moneylenders using the cash value part of policy as collateral.
Taking a loan against a life insurance policy offers advantages such as lower interest rates compared to personal loans and a faster approval process than other lending instruments.