Achi news desk-
IRDA has recently implemented new rules for delivery of life insurance policies. The new rules are partly better than the previous rules for the insured.
The insurance regulator IRDA has changed the rules related to the cash value of a life insurance policy. Closing the insurance policy before maturity is considered a surrender. If you surrender the policy, you receive a portion of the premium paid, called the surrender value. New rules related to surrender value came into effect on April 1.
So what are the new rules about surrender value? What will be the effect of changing the rules? What things should be remembered when delivering an insurance policy? Let us understand.
When the insured surrenders a policy, he does not receive most of the premium paid. IRDA has recently proposed to increase the surrender value of traditional policies to protect insurance customers from huge losses. Now first of all let’s understand what the rules were for surrender value before the new rules came in.
Until now, life insurance companies have given two options to hand over the policy. First – a guaranteed surrender value in which the policy could only be surrendered after the end of 3 years. No refund if the policy was surrendered before three years. In the second option, the insured received a special surrender value. This value was decided on the basis of the basic insurance amount, the total bonus and the redemption value. If the premium was paid for three years, then up to 30 percent of the total deposit amount was returned. Upon delivery of the policy between four and seven years, up to 50% of the amount was returned.
Each insurance company had different rules regarding referral value. IRDA has now revised the rules related to surrender value. Now you will receive a guaranteed return on the delivery of the policy. But it will not be of much use to the insured. In the new system, if the policy is older then the redemption value will be higher than before.
According to the new rules, if the policy is surrendered in the second year, 30 percent of the total premium will be returned. But the surrender value benefit will be available only after you have deposited the first two premiums. If the policy is surrendered in the third year, the insurance company will refund 35 percent of the amount.
The insurance policy was delivered between the fourth and seventh year, then 50 percent of the total premium paid will be returned to the insured. If the policy is surrendered two years before maturity, you will get back 90 percent of the premium.
If the policy is a one-time premium, it can be resolved after two years. According to the new rules, 75 percent of the total premium deposited will be returned in the third year. If the policy is surrendered in the last two years of the period, you will receive 90 percent surrender value.
Now the question arises, what effect will this change have?
SEBI Registered Investment Adviser Jitendra Solanki says that in the new guidelines provision has been made for guaranteed surrender value. But it will not be of much use to the insured. The new rules are more or less the same as before. In his first proposal, the insurance regulator established a provision to remove the surrender charge after a period. But due to lobbying by the insurance industry, this proposal was cancelled. If the old offer had been implemented, the entire premium would have been received as redemption value after the stipulated period. Now, if the policy is surrendered just one year before maturity, only 90 percent of the amount will be refunded. Overall, insurance companies will benefit from the new IRDA rules.
Cases of missed insurance The government also expressed concern on this issue. There have also been cases where life insurance was sold to people over the age of 80. All this was done for the greed of a huge commission.
If IRDAI were to reduce surrender charges, insurance companies would have to cut agent commission. Obviously, this would have adversely affected insurance sales. The main advantage of increasing the available value was that it was possible to curb the loss of insurance. Taking a step back on this matter will increase the loss of insurance, the consequences of which will be borne by the insured.
In such a situation, buy any life insurance policy only after careful thought. Do not buy a policy under pressure from anyone. If you close the insurance policy before maturity, you will be at a loss. In this situation, only a small part of the premium paid will be returned. Before surrendering the policy, thoroughly understand the rules related to it.
Published: April 7, 2024, 4:30 PM IST
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