Starting October 1, 2024, life insurance policyholders in India will benefit from new rules that increase the amount they receive when surrendering a policy. This change comes as the Insurance Regulatory and Development Authority of India (IRDAI) introduces a regulation requiring insurance companies to offer a higher Special Surrender Value (SSV). The move is expected to bring more financial relief to policyholders who choose to end their insurance contracts early.
Here’s a breakdown of what these new changes mean and how policyholders can benefit.
Higher Refunds on Policy Surrender
Under the existing rules, if you surrendered your life insurance policy between the fourth and seventh year, you would receive 50% of the total premiums paid, along with a portion of the bonuses accumulated. However, with the new regulations coming into effect, policyholders will get a higher surrender value when terminating their policy, making it a more beneficial decision if you no longer wish to continue with your policy.
For example:
- Old Rule: If your total premium for a policy is ₹2 lakh and you surrender it after four years, you would have received Rs. 1.2 lakh, which includes 50% of the premium and a partial bonus.
- New Rule: Now, if you surrender the same policy after October 1, you will receive Rs. 1.55 lakh, giving you a much higher refund on the same terms.
Refund After One Year of Policy
One of the most significant changes is that policyholders will now receive a refund even if they surrender their policy after just one year. Previously, those who gave up their policy after a year didn’t receive any money back, resulting in a total loss of the premium paid.
Let’s look at an example:
- If a policyholder purchases a 10-year life insurance policy with a sum assured of ₹5 lakh and pays ₹50,000 as the first-year premium, under the old rules, if they surrendered the policy after one year, they would not receive any refund.
- Under the new rules, the policyholder would receive Rs. 31,295 if they surrender after the first year, which means a significant improvement in recovering part of the premium paid.
Why These Changes Matter
For many, surrendering a life insurance policy becomes a necessity due to financial constraints or changing priorities. Previously, the refund amounts on surrendering were minimal, causing many to hesitate before making such a decision. With the revised rules, the IRDAI aims to provide policyholders with better financial outcomes, making it easier for them to manage their finances while ensuring they don’t lose too much of their investment.
Impact on Policyholders
These new changes will particularly benefit those who are unable to continue paying premiums or wish to end their policy early for personal reasons. The higher surrender values mean policyholders can recover a significant portion of their investment, reducing the financial loss that often came with giving up life insurance.
With these new rules in place, surrendering a life insurance policy no longer means losing out on a large part of the premiums you’ve already paid. This shift brings more flexibility and financial security to policyholders across India.
