State run insurer, Life Insurance Corporation (LIC) has raised the interest rates on loans against policy. The move comes in wake of the arbitrage chances which the policyholders had.
LIC was offering loans against policy at 9%, but there were a few deposit options giving returns of 9.5%, which gave the policyholder an option to earn a spread. The insurer has since changed the interest rates to 10%.
Interest rates, which had been steady for the past few years have changed because of volatility condition, stated an official. The rates on loans would keep changing from time to time, the official further stated. LIC allows the policyholders to take as much as 90% of the policyholder's equity, but only after assigning policy to LIC's name.
Other insurers are also charging interest rates ranging from 10% and upwards with few private banks offering at 12.5%. Insurers with JV with private banks transfer the loan request to the banking partner. LIC has also hiked the interest rate on late payment from 8% previously to 10%.
Loans against Public Provident Funds (PPF) are charged at 2% higher than the interest rate, which is 8.8% currently. Also only 25% of the balance payment of last 2 years can be taken as a loan.