Irdai’s policy rollback: How it affects insurance surrenders

livemint.com:

The Insurance Regulatory and Development Authority of India (Irdai) has junked its proposal to hike the guaranteed surrender value (GSV) for policyholders. Had this proposal, unveiled in December, been implemented, it would have increased the GSV of non-participating life insurance plans by 74-85%, as per some estimates. Non-participating plans are those in which maturity benefits are guaranteed and are not linked to the profits that insurers earn.

To be sure, while the GSV has been left unchanged, the insurance regulator has modified the way the special surrender value (SSV) is calculated. Insurance companies either pay GSV or SSV, whichever is higher, when a customer surrenders the policy. “Typically, SSV is what is paid to subscribers on surrendering their policers.

GSV is only a minimum benchmark," says Sanket Kawatkar, fellow, Institute of Actuaries of India, and director at Wisdom2Wealth, a firm focused on spreading financial awareness. In non-participating plans, insurers calculate the SSV in terms of the present value of the maturity benefit against the number of premiums paid for an individual policyholder. With effect from 1 April, according to Irdai, the SSV will reflect the notional asset share of the policy.

This concept already exists in participatory plans. What is a notional asset share, you would wonder! "Consider it as a bank account where all inflows and outflows linked to a policy are managed. The value of this bank account is the asset share," explains Kawatkar.