Introduction: The Insurance Regulatory and Development Authority of India (IRDAI) has released the final rules on the surrender value for traditional endowment policies, effective from April 1, 2024. The surrender value is expected to remain the same or lower if policies are surrendered within the initial three years.
Surrender Value Percentages:
- Second Year: 30% of total premiums paid.
- Third Year: 35% of total premiums paid.
- Fourth to Seventh Years: 50% of total premiums paid.
- Last Two Years: 90% of total premiums paid.
Key Points:
- Marginal Increase: Surrendering policies between the fourth and seventh years may result in a marginal increase in surrender value.
- Guaranteed Surrender Value: Non-single premium life insurance policies offer a guaranteed surrender value after paying premiums for at least two consecutive years.
Implications for Policyholders:
- Benefit to Insurers: While beneficial for insurance companies, policyholders may not see significant relief, maintaining the status quo.
- Challenges: Insurers face challenges in balancing distributor payouts, shareholder profitability, and other factors.
- Policyholder Disappointment: The maintenance of the status quo may disappoint policyholders expecting increased surrender values. Despite hopes raised by a consultation paper in December 2023, surrender values for policyholders remain modest in the initial years.
About IRDAI:
- Establishment: IRDAI is a statutory body established in 1999, following the recommendations of the Malhotra Committee report, and incorporated as a statutory body in April 2000.
- Jurisdiction: Ministry of Finance
- Chairman: Mr. Debasish Panda
- Headquarters: Hyderabad, Telangana
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