New rules for surrender value of life insurance policies have come into effect from October 1. Earlier, if a policyholder closed his life insurance policy after one year, all the money paid as premium would be lost. Now he will get back a part of the premium paid
The new rules of life insurance policy have come into effect from today i.e. October 1. Insurance regulator IRDIA had issued a master circular in June regarding this. The new rules of the insurance regulator were immediately applicable to new insurance products. Insurance companies were given time till September 30 to change the rules of products already present in the market. Now policyholders will get more money from the insurance company if they close the life insurance endowment policy before the stipulated time.
Earlier the entire premium money was lost
Earlier, if a policyholder closed the life insurance policy after one year, then his entire money paid as premium was lost. Now he will get back some part of the premium paid. This rule is for the endowment policy of life insurance. Endowment policy means a policy that has a savings component along with insurance. With the implementation of the new rule, the margin of insurance companies in the endowment policy will decrease. It is important to understand that the new rule will not apply to ULIP and term insurance policies.
Insurance companies opposed the new rule
After IRDAI presented the draft of the new rule, most life insurance companies opposed it in May and June. They said that the new rule could disturb their asset-liability balance, as these insurance plans are long term. This gives liquidity to insurance companies. They also argued that the new rule would have a bad effect on those policyholders who continue the policy till maturity. Their returns may decrease.
The new rule of surrender value was being considered for the last several years
The CEO of a big life insurance company said, “If the policy has been sold to the customer in a wrong manner, then we had given the option of returning the entire premium and not just giving more surrender value. Upfront charges are high and it is difficult to compensate for the commission paid in the initial years.” In fact, the discussion on the issue of surrender value and charges of life insurance policy started in December 2022 itself. Later many drafts and discussion papers came on this issue. Finally, the insurance regulator issued new rules for new products in March 2024. IRDA issued a master circular in June.
Policyholders will benefit from the new rule
Some life insurance companies have welcomed the new rules. They say that this will benefit policyholders. The reason for this is that most policies are discontinued in the initial years. According to a calculation, suppose a customer has bought an endowment policy whose annual premium is Rs 1.2 lakh. This policy is for 10 years and the premium has to be paid only for 5 years. According to the new rule, if this policy is surrendered after paying the first premium, then Rs 1.06 lakh will be returned. In the earlier rule, the customer did not get a single penny.
