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IRDAI retains existing surrender value norms after pushback from industry

Mar 26,2024

The Insurance Regulatory and Development Authority of India (IRDAI) has retained the existing surrender values for life insurance policies, following concerns raised by life insurers, according to the gazette notification issued later last week. The regulator also permitted sale of Index Linked Insurance Products, where the Net Asset Value (NAV) is linked to publicly available indexes

IRDAI decided to retain the regulations after it suggested an increase in the initial proposals in the draft regulations in surrender values, which had raised worries within the industry about potential higher short-term exits by policyholders.

For example, the guaranteed surrender value for regular pay is 30% if surrendered in the second year, 35% in third year, 50% between 4 to 7 years, and 90% during the last 2 years. For single premium products, the guaranteed surrender value will be 75% of the total premium paid if surrendered within three years, 90% within the last two years of the policy period.

Earlier, the draft regulations had proposed higher surrender values for policyholders, which could have encouraged exits from long-term life insurance policies in the short term, industry had represented. However, after considering industry’s feedback that could be caused by increased surrender values, IRDAI decided to retain it.

IRDAI has recognised Index Linked Insurance Products where the Net Asset Value (NAV) is linked to publicly available indexes.

On non-linked insurance products, the regulator has said that benefits in non-linked insurance savings products should be guaranteed in terms of an absolute amount at the policy’s inception to give policyholders clarity and certainty regarding the benefits they can expect.

In savings products, excluding terms with return of insurance premium, the regulator has said that survival & maturity benefits should be guaranteed and result in a non-zero positive return to policyholders to ensure that policyholders receive value from their savings products.

The regulator has said that pension products issued to individual customers should have defined assured benefits, which could be payable either on death or any health contingency, if covered. Also, they should be payable upon vesting under non-linked pension products, with the exception of linked pension products where it is optional to pay the defined assured benefit upon vesting.

In case of discontinuation in linked policies after 5 years, the regulator has said that customer can surrender and surrender value, which is unit fund value on the date of surrender paid or if the customer does revive the policy within 3 years of first unpaid premium, policy should terminate and fund value should be paid at the end of revival period.

IRDAI has asked insurers to classify all insurance products offered by life insurers either under linked insurance products or under non-linked insurance products.

Source: Healthworld

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