Want to surrender your Life Insurance policy? A recent IRDAI proposal is going to make your life easy with better surrender value! 

The proposal will help you in getting more money while surrendering a life insurance policy. But you may need to wait till the proposal becomes an official rule.

Currently, the amount you get after surrendering a policy is less; such as:

• Surrender after 4th and 7th year: Up to 50% of the premium paid is refunded. 
• Surrender in last two years of policy: Up to 90% of the premium paid is refunded. 
• Surrender in the first two years: Nothing! The insurer generally pays nothing in this case. 
• Surrender after 2nd or 3rd year: Up to 30-35% of the total premium paid is refunded. 
• So you see, surrendering a policy is a very loss-making exercise for policyholders currently, especially when done in initial years. 

Many policyholders regret buying life insurance policies due to low returns but tend to continue paying the premium due to harsh surrender value conditions imposed by insurers. But worry not. Some relief is coming soon. 

Also Read:- What is Bima Vistaar, IRDAI’s all-in-one Insurance Policy?

What’s New about Surrender Value? 

The insurance regulator (IRDAI) on December 12 issued a draft proposal, which will benefit policy holders. Let’s look at the key points of the IRDAI’s gamechanger proposal.

The draft proposal says: “Surrender value shall follow a smooth progression and shall be close to the expected maturity value towards the end of the policy term.” 

It further says: “There shall be a premium threshold defined for each product, wherein, there shall not be any surrender charges imposed on the balance of the premiums beyond such threshold limit, irrespective of the timing of the surrender.” 

Guaranteed Surrender Value

The IRDAI has proposed there shall be a Guaranteed Surrender Value (GSV) for all individual non-linked savings and protection oriented products. – The GSV shall be for all non-linked life insurance plans, non-linked pension plans (including deferred and immediate annuity products), term insurance, health insurance plans. 

The policy shall acquire a guaranteed surrender value of payment of premium for at least two consequent years. 

The GSV will be at least: 

• 30% of the total premiums paid less any survival benefits already paid, if surrendered during the second year of the policy 
• 35% of the total premiums paid less any survival benefits already paid, if surrendered during the third year of the policy.
• 50% of the total premiums paid less any survival benefits already paid, if surrendered between the fourth year and seventh year of the policy, both inclusive. 
• 90% of the total premiums paid less any survival benefits already paid, if surrendered during the last two years of the policy.
• Surrender value beyond the 7th year shall follow a smooth progression and converge to at least 90% of the total premiums paid less any survival benefits already paid, as the policy approaches maturity. 

Note: The above is still a draft proposal. It may take a few months before implementation and the final wording of the surrender value may be different.

(Read this in The 1% Club app)