Policy Surrender Rules:
Currently there are different rules for surrender charge. If a customer returns the policy after paying the premium for the second year, he gets only 30 percent of the premium paid back.
IRDA guidelines for surrender of policy
Insurance regulator IRDAI is preparing for major changes in the rules for surrendering insurance policies. Under this, work is being done to reach more insured people. For this, the insurance surrender charge can be reduced. Also, customers may get more total refund amount (surrender value). At the same time, IRDA can also decide some rules keeping in mind the interests of insurance companies. A meeting in this regard is to be held in March.
It is noteworthy that IRDA had released a discussion paper in this regard in December 2023. There is a proposal to increase the surrender value of life insurance policy. Also, it has been said that less surrender charge will be charged from the customers on returning the policy. Insurance companies charge this fee as a penalty for returning the policy before maturity.
Companies asked for concession: Insurance companies are opposing both these proposals of IRDA. They say that this will have a negative impact on their profits. In the meeting held with IRDA in February, the companies have demanded relaxation in the provisions related to surrender charge.
It is being told that IRDAI may consider further rationalizing the surrender value and charges in the March meeting. Its intention would be to provide greater benefits to the policyholder and limit the burden on insurance companies.
Hence the opposition of the companies: Currently there are different rules for surrender charge. If a customer returns the policy after paying the premium for the second year, he gets only 30 percent of the premium paid back. If IRDAI provisions are implemented, the premium refund may increase up to 175 percent. Also, the policyholder will have to pay less surrender charge.
Calculation possible on short and long term basis: Insurance companies have requested to determine the surrender value as per short and long term insurance policies. This can be decided on the basis of returning the policy before five years.
Irrespective of the policy term. Under this, the surrender value of policies with a tenure of more than five years can be fixed higher. Whereas if it is less than this, it may decrease. IRDA is also considering this.
