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High Interest Loans? Why not consider taking up a loan from your own Policy?

Insurance Policy Loans in Singapore: What You Need to Know

When an urgent need for cash arises, most people in Singapore typically consider bank loans, pawnshops, or licensed moneylenders. However, there is another option that many overlook: borrowing against your own insurance policy. Policy loans can offer quick access to funds, but it’s crucial to understand how they work and the impact they may have on your insurance portfolio.

How Policy Loans Work

A policy loan is a facility provided by your insurer, allowing you to borrow money using the cash value of your insurance policy as collateral. This is only possible if you own a policy that accumulates cash value, such as whole life, endowment, or annuity plans—term insurance policies do not qualify.

In essence, you are not withdrawing your cash value but pledging it to secure a loan from the insurer. The loan amount you can access depends on how much cash value your policy has built up, typically after several years of premium payments.

If you do not repay the loan, it is not considered a default in the traditional sense. However, any outstanding amount plus interest will be deducted from your policy’s death benefit or surrender value. If the loan and accrued interest exceed the policy’s cash value, your policy may lapse, resulting in a loss of coverage.

Pros and Cons of Policy Loans

Pros Cons
Quick access to cash with minimal paperwork and no credit checks Reduces policy’s cash value and death benefit if not repaid
No fixed repayment schedule or legal obligation to repay Interest compounds; unpaid loans can cause policy to lapse
Lower interest rates than unsecured loans Only available for policies with sufficient cash value
No impact on your credit score
Not suitable for term insurance or policies without cash value
Flexible usage of funds

When Should You Consider a Policy Loan?

Policy loans are most suitable when:

  • You are over-leveraged and have unsecured debt close to or exceeding 12 times your monthly income

  • You are unsure about your ability to repay the loan in full

  • You have a qualifying insurance policy with sufficient accumulated cash value

  • You need a guaranteed source of cash quickly1

Conversely, a bank loan may be preferable if you:

  • Do not have high unsecured debt

  • Are confident about repaying the loan

  • Require a larger loan amount than your policy can provide

  • Do not own a qualifying insurance policy or your policy lacks sufficient cash value1

Criteria to Take Up a Policy Loan in Singapore

To be eligible for a policy loan, you must meet these criteria:

  • Policy Type: Must be a cash-value insurance policy (whole life, endowment, or annuity)

  • Policy Status: The policy must be active and not lapsed

  • Sufficient Cash Value: The policy must have accumulated enough cash value, which usually takes several years

  • Loan Limits: Most insurers allow you to borrow up to 80–90% of the policy’s net surrender value

  • Application Process: Apply directly with your insurer, often via a simple form. Approval is generally straightforward

  • Interest Rates: Interest is charged on the loan amount and compounds annually. Some example of the insurer’s Interest rate, with rates subject to change

    • Income Insurance: 5.25% for SGD policies and 5.60% for USD policies. 
    • Prudential: 5.25% for SGD policies and 5.75% for USD policies. 
    • Manulife: 6.75%. 
    • China Taiping: 6.25%. 
    • HSBC Life: 6.5%. 
    • Great Eastern: 6.0% for SGD and 6.5% for USD APL (Automatic Premium Loan). 

Summary Table: Policy Loan vs. Bank Loan

Feature Policy Loan Bank Loan
Collateral Policy cash value None (unsecured)
Interest Rate Generally lower Generally higher
Repayment Obligation No fixed term; repayment optional Fixed monthly repayments
Credit Check Not required Required
Impact on Credit Score None Yes
Loan Amount Up to 80–90% of cash value Based on income/creditworthiness
Policy Impact Reduces benefits if unpaid No impact

Conclusion

Policy loans in Singapore can be a practical solution for accessing cash in emergencies, especially if you have a qualifying policy with sufficient cash value. They offer flexibility and relatively low interest rates, but come with the risk of reducing your policy’s benefits and even causing your policy to lapse if unmanaged. Carefully weigh the pros and cons and ensure you understand the terms before proceeding with a policy loan

Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek unbiased financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

Published By:

Chiang Wen Kai 詹渂凯

Having personally witness a close relative fall into a dire state in just a matter of weeks, the amount of shock and grief is an emotionally overwhelming and distressing situation. It’s a time marked by intense and complex feelings. The shock can leave one feeling numb, disoriented, and unable to fully comprehend the gravity of the situation. Grief, on the other hand, is a deep and profound sorrow that comes with a sense of loss, helplessness, and sadness.

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In compliance with the Personal Data Protection Act, Financial Alliance Pte Ltd (“FAPL”) seek your consent to collect and use your personal data (e.g. name, NRIC, contact numbers, mailing addresses, email addresses and photograph) for the purposes of and in accordance with FAPL’s Data Protection Policy, which can be found on FAPL’s website at https://fa.com.sg/data-protection-policy/.

根据《个人数据保护法》，鑫盟理财私人有限公司征求您的同意向您收集并使用您的个人信息。鑫盟理财将根据公司的个人数据保护政策所阐述的用途使用您的个人资料（例如姓名，证件号码，联系电话，邮寄地址，电邮地址和照片）。 该政策可在本公司网站上查寻，网址为 https://fa.com.sg/data-protection-policy/.

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  • 我已阅读并理解鑫盟理财私人有限公司的个人数据保护政策，并同意鑫盟理财私人有限公司根据个人数据保护政策所阐述的用途使用我的个人资料。
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  • 鑫盟理财私人有限公司的代表或员工并未直接与我联系或提出要约或招揽购买我原居住国境内所不提供的任何金融产品.
  • Financial Alliance Pte Ltd ( “FAPL”) is licensed by the Monetary Authority of Singapore (“MAS”) and allowed to conduct financial advisory activities in accordance with the Financial Advisers Act (Cap. 110) (“FAA”) and the Securities & Futures Act (Cap. 289) (“SFA”) within the jurisdiction of the Republic of Singapore and in accordance with the licenses granted by MAS
  • 鑫盟理财私人有限公司( “鑫盟理财”)持有由新加坡金融管理局(“MAS”)所颁发的牌照，并许可在新加坡共和国境内依据财务顾问法（第110章）和证券与期货交易法（第289章）进行财务咨询等相关业务
  • Any services provided by FAPL to persons not ordinarily resident in Singapore are provided solely on an offshore basis from Singapore, resulting from direct enquiry on the part of the foreign residents.
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  • As an integral part of the provision of such services, FAPL may from time to time make available to such residents, documents and information making reference to capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of the foreign jurisdiction).
  • 作为提供此类服务的一部分，鑫盟理财会不时向此类咨询者提供有关产品的参考文件和信息（例如，关于海外司法管辖区以外的资金管理或投资咨询服务等信息）。
  • Such documents and information are provided by Financial Alliance Pte Ltd (“FAPL”) is for general information only and is not intended for anyone other than the recipient.
  • 此类由鑫盟理财所提供的文件和信息仅供收件人做一般信息参考。
  • It does not take into account the specific investment objectives, financial situation or particular needs of any particular person.
  • 此类文件和信息不会把-个人投资目标，财务状况或其特定需求等考虑在内。
  • It does not constitute the making available of, or an offer or solicitation by FAPL to buy or sell or subscribe for any such capital markets product or to enter into a transaction or to participate in any particular trading or investment strategy nor an advice or a recommendation with respect to such financial products.
  • 鑫盟理财向该人士提供此类文件和信息将不构成要约或招揽购买或出售或认购任何此类资本市场产品，或达成交易或参与任何特定的投资策略，也不构成有关此类金融产品的建议或推荐。
  • These documents may not be published, circulated, reproduced or distributed in whole or in part to any other person without FAPL’s prior written consent.
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  • You shall ensure that you have and will continue to be fully compliant with all applicable laws in your home country when entering into discussion or contracts with FAPL.
  • 在与鑫盟理财进行讨论或签订合约时，您应确保您已完全遵守并将继续遵守您所在原居住国的所有适用法律及条规。

In compliance with the Personal Data Protection Act, Financial Alliance Pte Ltd (“FAPL”) seek your consent to collect and use your personal data (e.g. name, NRIC, contact numbers, mailing addresses, email addresses and photograph) for the purposes of and in accordance with FAPL’s Data Protection Policy, which can be found on FAPL’s website at https://fa.com.sg/data-protection-policy/.

根据《个人数据保护法》，鑫盟理财私人有限公司征求您的同意向您收集并使用您的个人信息。鑫盟理财将根据公司的个人数据保护政策所阐述的用途使用您的个人资料（例如姓名，证件号码，联系电话，邮寄地址，电邮地址和照片）。 该政策可在本公司网站上查寻，网址为 https://fa.com.sg/data-protection-policy/.

By submitting this form, you are deemed to have read and understood FAPL’s Personal Data Policy.

提交此表格，即表示您已阅读并理解鑫盟理财私人有限公司的个人数据政策