Commercial Banks disbursing loan against Insurance Board’s directives

Kathmandu: Everest Bank Limited, a joint venture of India, is issuing ‘Life Insurance Policy Loan’ against the rules. The Life Insurance Policy Directives 2078 mentions the provision that only the Life Insurers can provide loan against the collateral of life insurance policy.

There is no provision in the guideline that such loan can be disbursed by commercial bank or financial institution. However, Everest Bank as well as other commercial banks have been going out of their jurisdiction and disbursing loans in violation of Life Insurance Policy Guidelines.

According to Everest Bank’s website, loans up to 90 percent of the surrender value will be provided against the collateral of the insurance policy with surrender value. The bank has stated that the loan will be provided on the collateral of insurance policy issued by Rastriya Beema Sansthan, National Life Insurance, Life Insurance Corporation Nepal and American Life Insurance (Met Life).

When banks and financial institutions provide loan against policy, there is a risk that the interest rate changes along with the market interest rate. Also, since the interest income is not deposited in the insurance company’s fund, it also has a negative impact on the Life Insurance Fund.

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