Will policy surrender gain currency after new IRDA rules?

New Delhi: Good news for life insurance policyholders. IRDA has made significant changes to the rules related to the surrender value of life insurance policies. Surrendering a policy before maturity results in the insurer refunding a portion of the premiums paid, known as the surrender value.

The regulator states that policyholders who surrender a policy after one year of premium payments will be eligible for a special surrender value, which insurance companies determine based on premiums, bonuses, and existing surrender values. Additionally, IRDA allows insurance companies to deduct 0.5% above the 10-year government bond yield, currently at 7%, from the surrender value.

Let’s understand the rules of surrender value before the change-

Policyholders have no payout options before terminating the policy, with surrender becoming the sole choice after two years. Insurance companies offered two surrender options for policies surrendered after two years.  a guaranteed surrender value and a potentially higher special surrender value. Policyholders receive 30% of premiums paid after two years, 35% after three years, and up to 50% from four to seven years upon surrender. The surrender value could reach up to 90% in the final two years of maturity, with varying rules among insurance companies.

The new rules establish a common formula for determining the surrender value. According to experts, if a person pays a premium of Rs 10,000 in the first year, and closes this policy after a year, he can get back up to 70% of the amount. As the premium payment period increases… the amount in the surrender value will also increase… Obviously, compared to before, the amount of surrender value will be much higher.

What other benefits will be gained from IRDA’s new rules?

Regarding this, Pankaj Rastogi, director of Midas Finserve, says that some agents have sold such policies to people in the greed of commission. Who did not do any work for them. It had to wait for at least two years to surrender the policy. During this time, the agent would receive a two-year commission. Now getting the option of surrender after one year will curb the mis-selling of insurance. If any agent engages in mis-selling and policy surrenders occur as a result, the company reduces his incentives. Transparency will increase business in the industry.

IRDA’s new rule related to surrender value will prove to be a revolutionary step for the insurance industry. This will benefit policyholders. But any insurance policy should be taken thoughtfully. Make every effort that the time to surrender the policy does not come. Even though policyholders will get more money from the new rules. The surrendering of policy will be a loss.