Many rule changes have come into effect in the country from today, i.e. the first day of the month of October. One of these rules is related to Life Insurance Policy.
Under this, the rule of policy surrender has been changed and now policyholders will be able to surrender the policy easily as well as get more refund. The new rules of insurance regulator IRDAI have come into effect from October 1, 2024. Let us know what will be the benefit to the policyholders from this change in the rules?
Guaranteed surrender value in the first year
IRDAI’s new rules have been implemented from the first date i.e. today. If we talk about the benefits to policyholders, if you surrender your policy in the first year, then now 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 the deadline was fixed for 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. This means that after buying the insurance policy, he used to get the facility to surrender his policy (Insurance Policy Surrender Rule) only after paying the premium for at least two full years, whereas under the old guidelines there was no provision for giving any surrender value in the first year.
What does it mean to surrender a policy?
Before understanding this rule, it is very important to know the meaning of insurance policy surrender. Actually, surrendering a policy means that the policyholder does not want to run it till maturity and wants to exit this policy by closing it earlier. When this happens, the policyholder is given a payment called surrender value or early exit payout, the value of which is the higher of the Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV). The interest rate used in the calculation cannot be more than the current yield on 10-year Government Securities (G-Secs) plus an additional 50 basis points.
How much refund on insurance of 5 lakhs?
For example, consider a life insurance policy with a maturity period of 10 years, whose sum assured is Rs 1 lakh. So the annual premium for this is Rs 10,000, while the bonus is Rs 50,000. If we calculate it according to the rules implemented from October 1, then the present value of the paid insurance amount and future bonus will be Rs 7,823 or 78%.
If we look at a 10-year policy 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, then 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 Rs 31,295 back. If we talk about the formula used for this, then…
Impact on returns on policy
According to the report, this rule implemented by IRDAI may result in less profit for investors holding life insurance policies in long term investments. Actually, increase in surrender value may increase the cost for life insurance companies and it is likely that those holding policies for a long time may get less returns than before. Returns on non PAR policies may decrease by 0.3-0.5 percent, while bonus payments in PAR policies may decrease.
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