Life Insurance New Surrender Value Norms: What Does it Mean for Policyholders?

What are the new surrender value norms for life insurance policies?

The surrender value is an amount that is paid by your insurance company if you return your life insurance policy to them. It is a specific percentage of the premiums paid by you as a policyholder during the premium payment period.?

According to the new surrender value norms issued by IRDAI, every policyholder has the right to get the surrender value of their life insurance policy if they have paid the premium for at least 1 year. As per old surrender value norms, no surrender value was paid after payment of one year's premium.?

Let’s take an example to understand how the new surrender value norms work for a life insurance policyholder.

A policyholder bought a 10-year policy paying a premium of Rs 50,000 for a sum assured of Rs 5 lakhs. As per existing norms he would not have given any value or refund if he stopped paying the premium right after the first year. But as per the new surrender value norms guaranteed surrender value is paid to him even if he has paid a single premium.

After year 1 the policyholder is eligible for a surrender value. IRDAI has also asked the insurers to provide the benefit illustration to the policyholder before selling them the life insurance policy. This benefit illustration has to be mentioned in the policy document provided by every insurance company.

How new surrender value norms are beneficial for the policyholders?

The new surrender value norms offer various benefits to the policyholders. Let’s understand these benefits in detail:

1. High liquidity- The liquidity will increase with the introduction of new surrender value norms. The higher liquidity leads to an increase in sales of life insurance policies.

2. Flexibility- With the introduction of new surrender value norms the flexibility increases for the policyholders as they can get some money even if they return the policy during the first year.

3. Less deductions/penalties- There is a huge gap between the deductions by the insurer under new norms and old norms. Under the new norms, there are fewer deductions as compared to old norms.

4. Fewer chances of misselling- There are fewer chances of misselling by the insurer and agents as they might have to undergo losses if the policyholder stops paying premiums in the early premium payment years.

Key Takeaways

• The new surrender value norms are more beneficial for the policyholders.
• New surrender value norms are applicable starting from October 1, 2024.
• The new norms are not beneficial for the insurance companies as it’s going to impact their commissions.

Conclusion

The new surrender value norms which are applicable from Oct 1, 2024 are going to benefit policyholders a lot. The misselling by insurance companies will ultimately reduce with new surrender value norms.

We at PolicyX.com believe in zero spamming and misselling. That’s why we are the first choice of everyone. If you are confused about which term plan is best for you then you can contact us at PolicyX.com. One of our experts will assist you in choosing the right policy.