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Life Insurance Rule Change: Many rules have come into effect in the country from today i.e. the first day of October. One of these rules is related to Life Insurance Policy. Under this, the rules for policy surrender have been changed and now policyholders will be able to surrender the policy easily and will also be able to get more refund. The new rules of insurance regulator IRDAI have come into effect from October 1, 2024. Let us know how policyholders will benefit from this change in rules?
Guaranteed surrender value in the first year itself
The new rules of IRDAI have come into effect from the first date i.e. today itself. If we talk about the benefits to the policyholders, if you surrender your policy in the first year itself, then you will not have to lose the entire life insurance premium deposited by you. Rather, under the new rule, the Insurance Regulatory and Development Authority of India (IRDAI) has now made it clear that policyholders will get guaranteed surrender value from the first year itself, even if the policyholder has paid only one annual premium.
Earlier this time limit was set at two years
The latest change made by the insurance regulator is a relief, because earlier the policyholder used to get this facility from the second year only. This means that after purchasing an insurance policy, one would get the facility to surrender the policy (Insurance Policy Surrender Rule) only after paying the premium for at least two full years, whereas under the old guidelines, no surrender could be made in the first year. There was no provision for giving value.
What does it mean to surrender the policy?
Before understanding this rule, it is very important to know the meaning of insurance policy surrender. Actually, surrendering the policy means that the policyholder does not want to run it till maturity and wants to close it earlier and exit the policy. When this happens, the policyholder is paid a payment called a surrender value or early exit payout, which is the higher of the Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV). The interest rate used in the calculation cannot exceed the prevailing yield on 10-year government securities (G-Secs) plus an additional 50 basis points.
How much refund will be given on insurance of Rs 5 lakh?
For example, consider a life insurance policy with a maturity period of 10 years, with a sum assured of Rs 1 lakh. So the annual premium for this is Rs 10,000, while the bonus is Rs 50,000. If we calculate this as per the rule applicable from October 1, the present value of the sum assured and future bonuses paid will be Rs 7,823 or 78%.
If we look at a 10-year insurance with a sum assured of Rs 5 lakh, the policyholder will pay a premium of Rs 50,000 in the first year. Under the new rule, if he plans to leave the policy after one year, he will now get a refund. If the premium has been paid for a full year, then based on the calculation the policyholder will get back Rs 31,295. If we talk about the formula used for this…
Impact on returns on policy
According to the report, due to this rule implemented by IRDAI, investors holding life insurance policies in long-term investments may get less profits. In fact, the increase in surrender value may increase costs for life insurance companies and there is a possibility that those who have held the policy for a long time may get lower returns than before. Returns on non-PAR policies may decline by 0.3-0.5 per cent, while bonus payouts on PAR policies may decline.