The Insurance Regulatory and Development Authority of India (IRDAI) has mandated a higher special surrender value (SSV) for traditional endowment policies.
As per the new rule announced in IRDAI’s Master Circular on Life Insurance dated 12th June 2024, policyholders can receive a portion of their premium back even if they surrender their policy after one year. This change aims to provide customers with increased liquidity and flexibility in case they decide to switch policies.
According to the circular, the special surrender value of a life insurance policy must be at least equivalent to the present value of the paid-up sum assured, future benefits, and accrued benefits. This value is calculated using a formula based on the number of premiums paid and the sum assured.
What does ‘Surrender Value’ mean?
In insurance, surrender value is what you get if you end your policy early. Insurers may take away some money as ‘surrender charges’.
Even if you stop your policy, you still get the earnings and savings from it. But surrender charges are deducted from this amount. These charges are a part of the premiums you pay. They are meant to discourage early exits and cover the insurer’s costs.
There are two types of surrender value: guaranteed surrender value (GSV) and special surrender value (SSV). GSV is the minimum amount the insurer has to pay when you end the policy. It doesn’t include bonuses you’d get at maturity. SSV considers the paid-up capital, bonuses, and other benefits you’re entitled to at surrender time.
Increased Surrender Value for Early Policy Returns
Policyholders now have the option of receiving a refund even if they terminate their policy after the first year. Previously, exiting a policy within the first year meant losing the entire premium.
However, the IRDAI has now made the Special Surrender Value (SSV) payable after the completion of the first policy year, provided that the insurer has received the full year’s premium.
This applies to policies with a premium payment term of less than five years or single premium policies.
Benefit from Increased Surrender Value
These changes are particularly beneficial for policyholders who may have been misled into purchasing unsuitable policies through aggressive sales tactics.
The revised surrender value norms provide them with a higher amount of compensation, offering relief from potentially unfavorable policy terms.
Also Read: IRDAI makes Policy Loans mandatory under non-linked Life Insurance savings products
In addition to the enhanced surrender values, insurers are now required to provide customized benefit illustrations to prospective policyholders, detailing guaranteed surrender values (GSV), special surrender values (SSV), and payable surrender values separately.
This ensures transparency and empowers policyholders to make informed decisions when purchasing insurance products.
Overall, the introduction of higher surrender values and improved transparency in benefit illustrations represents a positive step towards protecting the interests of policyholders and promoting justice in the insurance sector.
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