A Unit Linked Insurance Plan (ULIP) can be pledged as collateral for a loan — even during the mandatory 5-year IRDAI lock-in — without surrendering the policy, disrupting the investment, or losing life cover. On SLiQ, ULIP loans start at 10.5% p.a., go up to 50–70% of the current fund value, and are disbursed within 6 hours. This article covers eligibility, interest rates, the lock-in exception, and the key risk to understand before borrowing.
A Unit Linked Insurance Plan (ULIP) is one of the most versatile financial products in India — it provides life cover while also building an investment corpus in market-linked funds. Most ULIP policyholders, however, are unaware that their policy can also serve as collateral for a loan, even during the mandatory 5-year lock-in period.
When a financial need arises, the typical choices are: surrender the policy, take a personal loan, or make a partial withdrawal from the ULIP. All three carry significant costs. There is a fourth option — a Loan Against ULIP Policy — that lets the policyholder access funds without disrupting the investment, the life cover, or the tax benefits.
1What Is a Loan Against a ULIP Policy?
A loan against a ULIP policy is a secured loan where the policyholder pledges the ULIP as collateral to a lender. The lender disburses a loan amount based on the current fund value or surrender value of the policy.
The policy remains active throughout the loan period — life cover continues, and the fund remains invested and keeps earning market-linked returns. The policyholder simply cannot surrender or make partial withdrawals from the policy while the loan is outstanding. Once the loan is fully repaid, all restrictions are lifted and the policy functions normally again.
2ULIP Loans vs Traditional Policy Loans
This is an important distinction. Loans against traditional insurance policies (endowment, money-back, whole life) are based on the guaranteed surrender value — a figure the insurer commits to in the policy document.
Loans against ULIPs, on the other hand, are based on the current fund value — the market value of the units held in the policy at the time of application. Because ULIP fund values fluctuate with the market, the loan amount and the lender's risk profile are dynamic. This is why not all lenders offer loans against ULIPs, and why the LTV (Loan-to-Value) ratios for ULIPs may differ from those for traditional policies.
3Eligibility & the Lock-in Rule
| Policy type | Active ULIP (unit-linked insurance plan) |
| Lock-in period | Policy must have completed the 5-year IRDAI-mandated lock-in |
| Premium status | Premiums must be up to date — policy must not be lapsed |
| Policyholder | Resident Indian, 21 years and above |
| Fund value | Minimum fund value as specified by the lender |
IRDAI mandates a 5-year lock-in on all ULIP policies, during which surrender and partial withdrawals are not permitted. However, SLiQ's lending partners are able to offer loans against ULIPs even during the lock-in period. The loan is structured as a lien on the policy, not a surrender or redemption, in a manner confirmed by the insurer and lender to comply with IRDAI regulations. This makes SLiQ one of the very few platforms in India where ULIP policyholders can access liquidity without waiting for the lock-in to end.
4How Much Can You Borrow?
The loan amount is calculated as a percentage of the current fund value or surrender value of the policy, depending on the lender's terms.
| Fund / Policy Type | Typical Loan Amount |
|---|---|
| ULIP (post lock-in) | 50% to 70% of current fund value |
A ULIP with a current fund value of Rs 15 lakh is eligible for a loan of Rs 7.5 lakh to Rs 10.5 lakh, depending on the lender and policy terms. Because the fund value is market-linked, the eligible loan amount may change as the NAV of the underlying funds changes.
5Interest Rate on ULIP Loans
Interest rates on ULIP loans typically range from 10.5% to 11.5% per annum, depending on the lender and the specific policy. This is significantly lower than personal loan rates, which range from 14% to 30% per annum. SLiQ connects borrowers with multiple lenders to ensure competitive rates are available for ULIP policies.
Interest is charged on the outstanding loan amount. Some lenders structure the facility as an overdraft — the borrower pays interest only on the amount drawn, not on the full sanctioned limit.
6Benefits of a ULIP Loan
Policy and life cover remain active
Unlike surrendering the policy, a loan does not terminate the ULIP. The life cover continues to protect the policyholder's family throughout the loan period.
Market-linked returns continue
The fund value continues to grow with market movements. If the market performs well during the loan period, the policyholder benefits from that growth even while the loan is outstanding.
Lower interest rate than alternatives
At 10.5%–11.5% p.a., a ULIP loan is materially cheaper than a personal loan. And unlike a partial withdrawal, which reduces the fund permanently, a loan is temporary — once repaid, the full fund value is restored.
No capital gains tax
Pledging the policy does not trigger any tax event. Surrendering or making partial withdrawals from a ULIP, by contrast, may attract tax depending on the holding period and the amount withdrawn.
No disruption to financial plan
The ULIP was purchased for long-term wealth creation and life cover. A loan against the ULIP preserves both goals while meeting a short-term liquidity need.
7Risk: If the Fund Value Falls
This is the key risk with ULIP loans, and it's important to understand clearly. Because the loan is based on the fund value, a significant market-driven fall in NAV can reduce the fund value below the outstanding loan amount. If the outstanding loan (principal + accrued interest) exceeds the policy's current fund value or surrender value, the lender may:
- Ask the policyholder to repay a portion of the loan immediately, or
- In the event of continued non-repayment, surrender the policy and adjust the proceeds against the outstanding dues
If the policy is surrendered in this way — involuntarily, due to default — the life cover also lapses. This is the most serious consequence of non-repayment.
How to manage this risk:
- Borrow only a portion of the maximum eligible amount, keeping a buffer against NAV volatility
- Monitor the fund value regularly and repay proactively if NAV falls significantly
- Choose a mix of equity and debt sub-funds in the ULIP to reduce volatility in the fund value
8How to Apply on SLiQ
SLiQ is India's fully digital platform for loans against insurance policies, including ULIPs. The entire process is paperless.
Step 1: Introduce Yourself
Visit sliqfin.com and enter PAN and basic details. SLiQ displays the eligible loan amount against the ULIP instantly.
Step 2: Choose Securities
Select the ULIP policy to be pledged as collateral.
Step 3: KYC Verification
Complete a quick Aadhaar-linked OTP-based digital KYC. Takes approximately 2 minutes.
Step 4: Digital Pledge
The policy is assigned digitally as collateral to the lender, and the loan agreement is signed electronically. Funds are credited to the bank account within 6 hours of completing the process.
9ULIP Loan at a Glance (via SLiQ)
| Minimum loan amount | Rs 25,000 |
| Interest rate | 10.5%–11.5% p.a. (varies by lender) |
| Loan tenure | Up to 96 months |
| Disbursement | Within 6 hours |
| Eligible age | 21 – 70 years |
| Lock-in requirement | Available even during the 5-year lock-in period, lien structured to comply with IRDAI regulations |
| Prepayment charges | NIL |
| CIBIL impact | None, no hard CIBIL inquiry |
| Process | 100% digital, no branch visit |
10Frequently Asked Questions
Yes — this is one of SLiQ's key differentiators. SLiQ's lending partners offer loans against ULIPs even during the lock-in period, structured as a lien on the policy in compliance with IRDAI regulations. The policy is not surrendered or redeemed. The ULIP must be active with premiums up to date. Confirm eligibility at sliqfin.com.
No. The fund continues to invest and earn market-linked returns throughout the loan period. The lien restricts surrender and partial withdrawal — it does not affect NAV appreciation.
If the outstanding loan exceeds the surrender value and remains unpaid, the lender can surrender the policy. The proceeds are applied toward the outstanding dues, and the life cover also lapses at this point. This is the most serious risk — always have a repayment plan before borrowing.
Yes. On SLiQ, there are zero prepayment or foreclosure charges. Repay any amount at any time.
No. A partial withdrawal reduces the fund permanently and may have tax implications depending on when it's made. A loan is temporary — once repaid, the full fund value is intact and continues to grow.
SLiQ supports ULIPs from leading insurers including HDFC Life, ICICI Prudential, Tata AIA, SBI Life, Bajaj Life Insurance Limited, Max Life, and others. Confirm the specific policy during the eligibility check.
SLiQ is India's only fully digital Loan Against Insurance Policy (LAIP) platform, backed by Rainmatter (Zerodha's investment fund). It supports both unit-linked and traditional insurance policies.
- Loans available against ULIPs even during the 5-year lock-in period — lien structured in compliance with IRDAI regulations
- 7 RBI-regulated lending partners: Tata Capital, Bajaj Finance, Jio Financial Services, ICICI Bank, Aditya Birla Capital, Geojit, and Infina
- 100% digital process — no branch visit, no physical documents
- Funds disbursed within 6 hours
- Zero prepayment or foreclosure charges
- No hard CIBIL inquiry
- WhatsApp support from loan specialists throughout the process
Over Rs 300 crore disbursed. 5,000+ customers served. Rs 650 crore+ in policy value retained — not surrendered.
Not sure whether your specific policy qualifies? See Which Insurance Policies Actually Qualify for a Loan? for the full eligibility breakdown, or compare the product against other borrowing options in Loan Against Insurance Policy vs Traditional Loans.
Check your eligible loan amount against your ULIP — free, instant, no CIBIL check.
Disclaimer: Interest rates, LTV ratios, and eligibility criteria are indicative and may vary by lender and policy type. ULIP investments are subject to market risk. This article is for informational purposes only and does not constitute financial or investment advice. Please read your policy documents carefully and consult a qualified financial advisor before making borrowing decisions. Backed by Rainmatter (Zerodha).
