Loan Repayment on Postal Life Insurance Policy
If you have availed loan against your PLI policy it is essential to know the PLI Loan Repayment Process, how to calculate the PLI loan repayment amount and what is the final process to settle your PLI loan.
Postal Life Insurance (PLI) is a widely recognized insurance scheme provided by the Indian Postal Department. It offers individuals life insurance coverage and the ability to obtain loans against their policies. In this article, we will delve into the process of repaying loans on Postal Life Insurance policies, covering important aspects, benefits, and considerations.
Understanding Postal Life Insurance
Postal Life Insurance is a government-backed insurance scheme. It provides life insurance coverage to government employees, defense personnel, and other eligible individuals. PLI offers various policies with different coverage and premium options. Notably, it allows policyholders to avail of loans against their policies.
Should you consider a loan against PLI policy?
As you are aware some PLI policies offer loans against their value. So here we will also discuss whether should you consider a loan against your PLI policy?, obsoletely, yes, if you need some money, then you should consider a loan against your PLI policy.
What is the PLI loan interest Rate?
5% half-yearly compounded and 10% yearly is the rate of interest on the loan on PLI policy. Typically if you are expecting 7.5% return on your short-term PLI policy and you are paying 10% interest on the loan against PLI, so 2.5% extra cost for loan is a considerable option.
How much loan amount against PLI policy?
90% of the surrender value of the PLI policy, you will get the loan amount.
Before you apply for a loan against the PLI policy, consider the following points: –
- Always check the loan admissibility against your before applying for the loan. You can check the loan’s admissible amount here ( 90% of surrender value) or through the customer portal or visit the nearest post office and request for loan quote in the online system or may check your PLI customer Portal.
- Before applying for the loan, your policy premium should be paid upto date, then only you will be eligible for a loan.
- Documents keep ready: – Original policy bond, Premium receipt book/premium deduction certificate from DDO (in case pay policy) , Aadhar Card, PLI Loan application with loan bond form.
Loan Facility in Postal Life Insurance
The loan facility in Postal Life Insurance permits policyholders to borrow funds based on the surrender value of their policies. This feature is particularly useful during financial emergencies or when immediate access to funds is required.
By availing a loan, policyholders can access a certain percentage of the policy’s surrender value, which is the amount payable upon termination of the policy before its maturity. However, in case of the AEA Children policy or Gram Priya policy, a loan facility is not available.
Eligibility Criteria for Loans in PLI Policy:-
To be eligible for a loan on a Postal Life Insurance policy, policyholders must meet specific criteria. These criteria may vary depending on the policy type and premium payment terms. Generally, the following conditions apply:
The policy must have completed a minimum duration (e.g., three years) from the commencement date.
Policyholders should have paid all premiums due until the loan application date.There should be no outstanding dues or penalties related to the policy.
Applying for a Loan in PLI Policy:-
Applying for a loan on a Postal Life Insurance policy involves a simple procedure. The general steps are as follows:
Contact the nearest post office or the designated office i.e CPC/ Head Post office.
Obtain the loan application form and accurately fill in all the necessary details. The loan application form can be downloaded online.
Now submit the loan application form duly completed in all respects along with the required documents, such as identity proof, address proof, and policy-related documents.
Await the loan approval and disbursal process, which may take a few days.
PLI Loan Repayment Process and Calculation:- How to make loan repayment: –
After taking the PLI loan interest and principal amount repayment is important. Normally PLI charges interest on half half-yearly basis. Let’s understand this in the below-given example: –
- If the PLI loan was disbursed to you on 22.03.2020 of amount of Rs 100,000/
- You can make payment of the interest amount within 6 months i.e from 22.03.2020 to 31.08.2020. on 1st Sep-2020, interest, and principal if any amount is paid will be adjusted and re-calculated.
- If you have paid interest or principal either in march-2020 or April-2020 or may-2020 or June-2020 or July-2020 or August-2020, it will be adjusted only 1st September-2020 i.e beginning of the next half-yearly of your loan.
- If you did not pay any interest or principal during this half yearly period, your loan amount will be 105000 as on 01.09.2020 and interest for next half yearly will be 5250 i.e 5% of 105000.
- If you paid interest of Rs.5000 and principal Rs.10,000 during 22.03.2020 to 31.08.2020, your net principal amount as on 01.09.2020 will be Rs.90,000/- and next half yearly interest will be 5% of 90,000/- i.e 4500/- ( to be paid between 01.09.2020 to 28.02.2021) so on…
- So it is important to make payment interest regularly or if possible some principal amount.
- Inc case you did not paid any principal, the whole amount will be deducted from the maturity value.
- In case non-payment of interest your policy may be surrendered by the PLI as per terms and conditions.
PLI loan repayment calculator in Excel: –
For your information and convenience, there are lots of PLI loan repayment calculators available. Some of the calculators can be checked from here.
Options for PLI Loan Repayment:-
Loan repayment on a Postal Life Insurance policy can be done through various methods. The common repayment options include:
- Deduction from the policy maturity amount: Upon policy maturity, the outstanding loan amount can be deducted from the maturity proceeds, however, this option should be used when your PLI policy is going to mature shortly.
- Regular installment payments: Policyholders can choose to repay the loan through regular installments, which can be made monthly, quarterly, half-yearly, or annually, as per convenience, however adjustment of all payments will be done on half yearly basis only.
- Lump-sum repayment: Alternatively, policyholders can make a lump-sum payment to clear the loan amount. This option is suitable for those who have the necessary funds available. The final adjustment interest in this case will be calculated upto the end of the month of final loan amount payment only.
PLI Loan Repayment Online: –
You can also make loan repayments online, through the PLI customer portal, however, it is advisable to make one payment through the customer portal and then visit to the nearest post office to check the adjustment of the online payment installments.
Benefits of Repaying the PLI Loan:-
Repaying the loan on a Postal Life Insurance policy offers several benefits to policyholders. Some key advantages include:
- Reduced financial burden: By repaying the loan, policyholders eliminate the outstanding debt and the associated interest burden.
- Preservation of policy benefits: Non-repayment of the loan can lead to a reduction in the policy benefits or even policy termination. By repaying the loan, policyholders ensure the preservation of the policy’s original terms and benefits.
- Peace of mind: Clearing the loan provides a sense of financial security and peace of mind, knowing that there are no outstanding obligations.
Consequences of Defaulting on PLI Loan Repayment
Defaulting on loan repayment for a Postal Life Insurance policy can have significant consequences. Possible outcomes include:
- Accumulated interest charges: Non-repayment of the loan results in the accumulation of interest charges, increasing the overall outstanding amount.
- Policy termination: In extreme cases of non-repayment, insurance providers may terminate the policy, resulting in the loss of insurance coverage and surrender value.
- Legal action: If policyholders fail to repay the loan despite repeated reminders, insurance providers may initiate legal proceedings to recover the outstanding amount.
- Prioritizing timely loan repayment is crucial to avoid these consequences and maintain the integrity of the policy.
Important Points:-
- Always pay your PLI loan installment amount every 6 months, monthly payment will not decrease your interest, it will adjust only at the end of half yearly.
- In case you paid all the loan amount, ensure to obtain your original policy bond if deposited with PLI.
- It is better to repay your PLI loan to get the maximum benefit from PLI at least repay your interest component every half yearly.
FAQs
Can I avail a loan on a new Postal Life Insurance policy?
Yes, a loan can be availed on a new Postal Life Insurance policy once it has completed a specific minimum duration, as per the policy terms, normally eligible only after 3yrs.
Can I prepay the loan before the maturity of my policy?
Yes, it is possible to prepay the loan before the policy’s maturity.
Can the loan amount exceed the policy’s surrender value?
No, the loan amount cannot exceed the policy’s surrender value. The loan amount is generally a 90 or less percentage of the surrender value.
Can I avail of multiple loans against the same Postal Life Insurance policy?
No, typically, policyholders can avail only one loan against a Postal Life Insurance policy at a time. The loan must be repaid before applying for a new one.
What is the interest rate of loan in PLI?
Its 10% yearly
What is I fail to pay interest or principal in PLI loan?
Failure to make payment of loan in PLI policy, when surrender value of policy crosses 100% , PLI considers the policy for auto surrender.
How can I know my balance principal amount?
Normally after payment of interest or principal amount, you can check with the nearest policy office for your outstanding principal loan amount or you can also check in the customer portal.
Conclusion
Repaying a loan on a Postal Life Insurance policy is a crucial responsibility for policyholders. It ensures financial stability, preserves policy benefits, and safeguards against potential consequences of default. By understanding the loan repayment options, eligibility criteria, and benefits, policyholders can make informed decisions and maintain the integrity of their Postal Life Insurance policies.