As of October 1, 2024, Life Insurance policyholders in India will benefit from a significant regulatory change regarding the surrender of their policies. The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a new rule requiring insurance companies to offer a higher Special Surrender Value (SSV) for traditional endowment policies. This change is expected to provide more flexibility and higher returns to policyholders who choose to surrender their Life Insurance Policies early.
At PolicyBachat, we help you understand these crucial changes and how they impact your Life Insurance Policy.
What Does the New Rule Mean for You?
Previously, policyholders who decided to Exit their Life Insurance Policies during the initial years often faced the disappointment of receiving a meagre or no refund. However, with the New Special Surrender Value rule coming into effect from October 1, 2024, this situation will change significantly. You will now receive a higher refund if you surrender your life insurance policy, even if you exit the policy during the early years.
This move by IRDAI aims to increase the liquidity and flexibility of traditional life insurance policies, especially endowment plans. Endowment policies combine life coverage with savings, where policyholders receive a lump sum either on maturity or on death. If you’ve been stuck in a policy that no longer suits your needs or financial goals, this rule will make it easier to switch policies without losing a substantial part of your investment.
Why Was This Change Introduced?
Many policyholders were unhappy with the previous surrender value norms, especially those who had to exit their policies early due to unforeseen circumstances. Surrendering a policy within the first few years often meant losing the entire premium paid. IRDAI has recognized this issue and introduced the new rule to protect policyholders' investments and give them more control over their money.
How is the Special Surrender Value (SSV) Calculated?
The IRDAI has specified how the special surrender value should be calculated. According to their circular issued on June 12, 2024, the SSV will be at least equal to the present value of the following:
- Paid-up sum assured: This is the reduced amount of the sum assured that corresponds to the number of premiums paid versus the total number of premiums due.
- Paid-up future benefits: Any future benefits, such as income payouts, will be included in the calculation if applicable.
- Accrued or vested bonuses: Bonuses that have been declared on your policy will also be part of the surrender value calculation.
Additionally, IRDAI has capped the calculation spread at 50 basis points above the 10-year government securities (G-Sec) yield. This means that the value of your policy will be linked to prevailing market rates, making the surrender value fairer and more transparent.
An Example of the New Surrender Value Norms
Let’s consider a scenario where a Policyholder has purchased a 10-year Life Insurance Policy with a sum assured of Rs 5 lakh and pays an annual premium of Rs 50,000. If the policyholder decides to surrender the policy after paying just one year’s premium, they would have previously received no refund. However, under the new rules, the policyholder will now be entitled to a refund of Rs 31,295 even if they exit the policy after just one year.
Who Will Benefit from This Change?
This rule will be a boon for policyholders who were previously stuck in products that no longer fit their needs. Mis-selling in the insurance industry has been a common issue, where customers were sold policies that didn’t align with their financial goals. Now, policyholders can exit such policies without losing a significant portion of their investment.
It is important to note that the new special surrender value norms primarily apply to new endowment policies issued after the rule takes effect on October 1, 2024. However, existing policyholders should check with their insurers to see if the new rules impact them as well.
How Will You Know Your Special Surrender Value?
IRDAI has made it mandatory for insurers to disclose the surrender values upfront. When you purchase a policy, the benefit illustration provided by the insurer will clearly indicate the guaranteed surrender values (GSV), special surrender value (SSV), and the surrender value payable. These details will be part of the policy document, signed by both the policyholder and the insurance agent.
So, when you buy a life insurance policy, make sure to carefully review the benefit illustration. This document will provide you with a clear understanding of how much money you will get back if you decide to surrender the policy in the future.
| Year |
Premium |
Bonus |
Paid-up Sum Assured + Accrued Bonus |
Present Value |
% of Premium |
| 1 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 60,000.00 |
₹ 31,295.01 |
62.59% |
| 2 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 120,000.00 |
₹ 67,284.27 |
67.28% |
| 3 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 180,000.00 |
₹ 108,495.88 |
72.33% |
| 4 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 240,000.00 |
₹ 155,510.76 |
77.76% |
| 5 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 300,000.00 |
₹ 208,967.59 |
83.59% |
| 6 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 360,000.00 |
₹ 269,568.19 |
89.86% |
| 7 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 420,000.00 |
₹ 338,083.44 |
96.60% |
| 8 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 480,000.00 |
₹ 415,359.65 |
103.84% |
| 9 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 540,000.00 |
₹ 502,325.58 |
111.63% |
| 10 |
₹ 50,000.00 |
₹ 10,000.00 |
₹ 600,000.00 |
₹ 600,000.00 |
120.00% |
What Should You Do?
If you already have a Life Insurance Policy and are considering surrendering it, it’s important to understand the new rules and calculate how much you stand to get back. With higher refunds available under the new regulations, it may now make sense to exit policies that no longer meet your financial needs. Alternatively, you may also want to explore newer, more suitable policies.
At PolicyBachat, we can help you understand these changes and compare policies from top insurance providers in India. Whether you're looking to switch policies or invest in a new one, our experts are here to guide you through the process. With the introduction of this new surrender value rule, policyholders have more flexibility than ever to take control of their financial future.
Conclusion
The New Life Insurance Rule Change, effective from October 1, 2024, marks a positive step toward ensuring Higher Returns for Policyholders when they choose to surrender their policies. This move is aimed at increasing flexibility and protecting consumers from Financial Losses associated with early exits from life insurance policies.
If you’re considering surrendering your policy or exploring new life insurance options, contact PolicyBachat today. Our team will help you navigate through the complexities of Life Insurance and ensure that you make informed decisions about your financial future.