IRDAI’s new policy surrender value rule: How will it impact life insurance policyholders?

financialexpress.com:

Good news for life insurance policyholders! Now insurance companies will have to pay higher surrender value to the person insured on exiting the policy during initial years.

After multiple revisions in the past, the Insurance Regulatory and Development Authority of India (IRDAI) has come out with new updates on regulations regarding the surrender value of life insurance policies.

Earlier in December last year, the draft had proposed higher surrender values for policyholders. However, the final master circular, issued now, has lower surrender value than what was proposed earlier. The value, however, is still higher than the existing rate.

The IRDAI circular has made it clear that the special surrender value rule offers policyholders the opportunity to receive a portion of their premium back even if they exit from the policies after just one year. This IRDAI move is likely to boost liquidity and flexibility for life insurance customers who may wish to switch their policies.

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The special surrender value calculation, however, will be based on several other factors including the policy’s term, premium paid, and the duration for which the policy has been active. The exact formula for calculation of surrender value may vary insurer to insurer as the value is arrived at by typically considering factors such as the total premium paid, policy duration, and the surrender charges applicable.

While deciding on the surrender value, insurers shall ensure reasonableness and value for money to all types of policyholders including surrendering policyholders and continuing policyholders, the circular said.

In its master