The Insurance Regulatory and Development Authority of India (IRDAI) has retained the current surrender values for life insurance policies, as per a gazette notification issued last week. Though they had proposed revisions it decided to retain most of the old surrender values with minor adjustments after industry feedback. Effective from April 1, 2024, the surrender values will remain the same or even lower if policies are surrendered within three years.
Last year's end, the IRDAI had proposed revisions to surrender values in a draft regulation; to curb mis-spelling as insurance companies would lose money by paying higher surrender sums if a policy was discontinued prematurely. Buth concerns were raised by life insurers saying they feared more short-term exits by policyholders. After the industry feedback, IRDAI decided to maintain the existing surrender values.
IRDAI New Rules
Under the finalised rules released on March 20, 2024, all policies except single premium products should accrue a guaranteed surrender value after two consecutive years of premium payment. Surrender value refers to the amount paid by the insurers to the policyholder upon premature policy termination.
The surrender payment value will be as follows: At least 30 per cent of total premiums minus any survival benefits already paid, if surrendered during the second year. At least 35 per cent of total premiums less any survival benefits already paid if surrendered during the third year.
Similarly, surrender between the fourth and seventh years will get you between 50 per cent and 90 per cent of total premiums, if surrendered between the fourth and seventh years and if surrendered during the last two years respectively. These values are also subject to deductions for any survival benefits already paid.
The surrender charges, which vary based on the policy year and annualised premium are also fixed. For policies with an annual premium up to Rs 50,000, the maximum discontinuance charge is determined as a percentage of the yearly premium or fund value, whichever is lower. But the maximum cap is set at Rs 3,000 if discontinued within one year and Rs 4,000 if discontinued within four years.
On non-linked insurance products, the regulator has said that benefits in non-linked insurance savings products should be guaranteed in terms of an absolute amount at the policy’s inception to give policyholders clarity and certainty regarding the benefits they can expect. In the case of savings products, other than term insurance products with return of premium, survival benefits including maturity benefit shall result in at least non-zero positive return to the policyholder, the insurance regulator said.
Moreover, IRDAI mandates that pension products issued to individual customers should have defined assured benefits, which could be payable either on death or any health contingency if covered. Also, they should be payable upon vesting under non-linked pension products, with the exception of linked pension products where it is optional to pay the defined assured benefit upon vesting.
