Insurance Update: If the policy is closed before maturity, there will be less loss, IRDAI issued a proposal..


Whenever an insurance policyholder closes his policy before maturity, he gets back a part of the premium paid till then, this is called surrender value. For this, the surrender value is calculated. However, insurance companies deduct charges for closing the policy before maturity. But now insurance customers can benefit from surrender value. Insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) has issued a consultation paper regarding this.


What is IRDAI's proposal?
IRDAI has proposed a higher surrender value for non-par products in the consultation paper. The higher amount, either Guaranteed Surrender Value or Special Surrender Value, will be given. This will increase the surrender value of policyholders. This will hurt the margins of non-par products. It is worth noting that this proposal has been made for non-par or non-participating products. Non-participating products mean such policies on which the policyholder does not get a share in the company's profits and does not get the benefit of annual dividend payout.

What is a surrender value?
See, when the policyholder terminates the policy before maturity, then the insurance company pays the surrender value to the policyholder. Lumpsum returns the premium amount to the policyholders as surrender value. For surrender value, the policyholder has to pay a premium for at least three years, that is, you will get the surrender value only if you have paid the premium continuously for three years. Also, know that there are two types of surrender value – Guaranteed Surrender Value and Special Surrender Value.


Which companies will be affected?
If this provision comes from IRDAI, then companies like HDFC Life, SBI Life, Max Life, ICICI Pru Life, and LIC will be affected. But what is the share of non-participating products in the portfolios of these companies?

Life Insurance Companies     Non-PAR products (%)

HDFC Life                                   28%
ICICI Life                                   14%
  SBI Life                                     20%
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