LIC Policy Loan EMI Calculator

Unlike standard personal loans or credit cards that calculate monthly simple or compounded interest, loans taken against life insurance policies from the Life Insurance Corporation of India (LIC) are regulated under a unique half-yearly compounding schedule.

LIC charges an annual floating interest rate (traditionally locked at 9.50% p.a.). If you do not pay the half-yearly interest when it falls due, the outstanding interest is added to the principal balance at the end of the 6-month period, causing your outstanding debt to grow exponentially.

When taking a loan against your LIC policy, the insurance plan acts as the sole collateral. The maximum loan amount permitted is strictly capped at **90% of the policy's cash surrender value** (or 85% for paid-up policies).

If you opt for the accumulating interest mode (where no periodic interest or principal payments are made), the loan balance continues to compounding.

LIC offers remarkable flexibility in how policy loans are settled. Borrowers can choose between three distinctive strategies:

• •1. Reducing EMI Repayment: Standard monthly instalments representing both interest and principal components. This minimizes total interest cost but requires monthly budget allocations.
• •2. Half-Yearly Interest Only: Servicing only the accrued interest every 6 months. This prevents compounding and keeps the policy completely safe, while deferred principal is paid off at policy end or through deductions.
• •3. Deferred Accumulation: No periodic repayments. Outstanding debt compounds semi-annually and is simply deducted from the tax-free maturity claim or death claim proceeds. High foreclosure risk if not monitored!

It is important to differentiate between general home loan tax deductions and policy loan taxation rules:

• •Section 80C Limits: Repaying the principal on a policy loan does **not** qualify for Section 80C deductions, unlike housing loan principal repayments which qualify up to ₹1.5 Lakhs per year.
• •Section 24(b) Exclusion: Interest payments made on policy loans are **not** eligible for deductions, unless the borrowed funds are explicitly and documentably used for construction or acquisition of residential house property.
• •Tax-Free Settlement: If your policy qualifies for exemption under **Section 10(10D)**, the remaining payout after deducting outstanding loan balances and interest continues to be completely tax-free.