Loan on insurance is good for a while
But please note that you are paying interest to access your own money.
Q&A
Q I am 38 years old and have recently undergone a bypass surgery. I am planning to buy a mediclaim policy. About five years ago, I used to have a mediclaim under group cover from my company. But it was discontinued after I left the company and my new employer doesn’t offer health cover. Please suggest what can be done.
Arjun Babu
Hyderabad
We always recommend having a separate individual mediclaim policy over and above the insurance provided by the employer to avoid the kind of situation you are cacing. You should never rely on the employer’s insurance since it will be available only till you work with the company. So it is advisable to have a separate policy for yourself and family.
It will be very difficult for you to get a health insurance since you have already undergone a bypass surgery. You can try applying for the Bank of Baroda policy for yourself of Rs 5 lakh, this will cost you Rs 7,079 per annum. However, you should disclose the fact that you have undergone a bypass surgery while applying for the policy.
Q I have been told by my insurance agent that I can take a loan on my policy. What are the policies that allow us to take such loans? How good are these loans?
B. Dayanand
Bengaluru
Yes, you can get a loan on your traditional life insurance policy if you have paid the premium for the first 3 years. The loan amount is equal to 90 per cent of the surrender value of the policy. Currently, LIC provides loans at an interest of nine per cent per annum, while other private insurers may provide at different rates, which will be slightly higher than that charged by LIC.
It is beneficial to take a loan on the policy if you require money for an emergency, since loans from banks are available at a higher rates of interest.
Please note that you are paying interest to access your own money. So if the need is long-term, you can instead consider surrendering the policy.
Q I have a credit card with a limit of Rs 1 lakh. The bank is offering 50 per cent of this as a loan at 0.99 per cent reducing balance. Can I avail this loan?
Rajan Kochi
Loans against credit cards work just like personal loans but without the cumbersome documentation. Not all banks offer loans on credit cards; even in banks that do, it may not be available to everyone. Banks provide this loan to customers with high credit standing. This means if you have been using a bank’s credit card for some time and you have a good payment record, then you are most likely to be eligible for a loan on credit card.
This is useful only when there is an urgent need for liquid funds since any other loan will take at least two weeks to process and also because of the documentation involved which is not the case in case of loan against credit cards. One big issue is the service tax on interest which may be payable on loan against credit card but not on a regular personal loan.
So at a face value interest rate of 0.99 per cent looks good, but you will have to add service tax of 12.36 per cent to arrive at the actual rate of interest you will be paying on that amount.
(The writer is the CEO of Apnapaisa.com. You can send in your queries to movingmoney@ deccanmail.com)