Life Insurance Surrender Value news: Months after proposing higher surrender value for life insurance policyholders, the Insurance Regulatory and Development Authority of India (IRDAI) has notified a watered-down version of the proposals.

The regulator has approved graded surrender value rules, which imply largely unchanged or lower rates for policies surrendered up to 3 years. (You can see what the IRDAI proposed earlier here).

Surrender value is the amount a life insurance policyholder gets after surrendering the policy before the end of policy tenure. Many policyholders often surrender their policies when they fail to pay annual premiums or realize the policy is not beneficial for them.

Life Insurance Surrender Values Approved

Here’s a look at the surrender value rules approved by the insurance regulator:

1. Non-single premium life insurance policy: In this case, a guaranteed surrender value shall be paid to the policyholder if s/he has paid premium for at least two consecutive years. This means, you may get nothing if surrendering after paying premium for one year only. Further, the surrender value in this case will vary depending on following conditions:

• A policyholder can get 30% of total premium paid if s/he surrenders the policy during the second year
• A policyholder can get 35% of total premium paid if s/he surrenders the policy during the third year
• A policyholder can get 50% of total premium paid if s/he surrenders the policy between fourth and seventh years.
• A policyholder can get 90% of total premium paid if s/he surrenders the policy during the last two years.

However, the above values would decrease in the case the insurer has already paid survival benefits to the policyholder.

Also Read: How much refund can you get during 30-day Free Look Period for Life and Health Insurance

2. Single premium life insurance policy: In this case, a policyholder can get at least one of the following guaranteed surrender value minus survival benefits if paid already.

• A policyholder of single-premium plan can get 75% of total premium paid if s/he surrenders the policy within three years.
• A policyholder can get 90% of total premium paid if s/he surrenders the policy during the last two years of the policy term.
• 90% of the total premiums paid if surrendered in the fourth policy year. However, “surrender value beyond the fourth year shall follow a smooth progression and converge to at least 90% of the total premium paid less any survival benefits already paid, as the policy approaches maturity,” IRDAI’s notification says.

Note: The above values would decrease in the case the insurer has already paid survival benefits to the policyholder.

The new regulations will be effective from April 1, 2024.

Why did IRDAI not change surrender value rules?

The insurance regulator decided to largely retain existing surrender values in view of concerns raised by life insurance companies. Insurers had claimed a higher surrender value may encourage early exits from long-term life policies in the short term.

The IRDAI’s final decision on surrender value is likely to benefit life insurance companies. However, there is nothing much for policyholders.

The impact of IRDAI’s decision was seen in the stock market also as share prices of life insurance companies surged on Tuesday (March 26).

Disclaimer: The above content is for informational purposes only. Please consult a financial planner to help you chose the right life and health insurance policies.