As per the new draft, IRDAI has proposed higher surrender value on non-par insurance products (non-participating life insurance).
Life Insurance New Rules: Important news for policyholders! Insurance industry regulator IRDAI has come out with an exposure draft for product regulation. Also, high surrender value has been proposed for life insurance products.
What is surrender value?
Surrender value is the amount that an insurance company pays to the policyholder if they decide to terminate their policy before its maturity.
Let us tell you that this will be applicable only to those insurance policies which come with surrender benefit.
As per the new draft, IRDAI has proposed higher surrender value on non-par insurance products (non-participating life insurance) . Additionally, the insurance industry regulator has also made some changes in the method of calculating surrender charges.
According to the new rules, there will now be a premium limit for the product where no surrender charge will be levied.
This exposure draft is likely to have a negative impact on the margins of non-participating life insurance companies. The increase in surrender price will also impact the margins of non-participating products of life insurance companies.
How many types of surrender value are there?
Guaranteed Surrender Value (GSV) and Special Surrender Value (SSV) are two types of
surrender values in insurance.
GSV is the minimum amount that an insurance company pays to the policyholder on surrender of the policy and is pre-determined at the time of policy purchase.
On the other hand, SSV, apart from GSV, is an amount given at the discretion of the insurance company. It takes into account several factors such as policy term, number of premiums paid, current market conditions and other such factors.
Who pays the surrender value?
This money is paid by the insurance company to the policyholder when they surrender their policy before the end of their policy term. It depends on the number of years the policyholder has paid the premiums, the sum assured and the benefits provided by the insurance company.
What is a non-participating life insurance policy?
Non-participating life insurance policy is a plan in which no bonus or dividend payout is available based on the company’s profits. Therefore, in such plans the policyholder will not participate or take any interest in the profits earned from the insurance provider.
Talking about participating insurance policy, it is also a life insurance plan, in which the policyholder can participate in the profits of the insurance company. This participating plan also offers additional financial benefits in addition to the sum assured.
IRDA proposed that there will be no much loss on surrendering the life insurance policy.
