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New guidelines related to the surrendering of insurance policies will come into effect from Tuesday (October 1). These rules were introduced by the Insurance Regulatory and Development Authority of India (IRDAI) earlier this year with an aim to offer better returns to policyholders who exit their life insurance policies early. As a result, there are expectations that insurance premiums could rise, or agents’ commissions may ‘be reduced.
Surrender value provided by insurance companies
The term ‘surrender value’ refers to the amount an insurance company pays to a policyholder if they choose to surrender their policy before its maturity. In such cases, the policyholder receives a portion of their income and savings. IRDAI has emphasised that insurance companies must ensure fairness and transparency for both exiting policyholders and those continuing their policies when determining the surrender value.
Premiums could rise or agents’ commissions may decrease
According to a senior official from a private insurance company, life insurance companies may either raise premiums or cut agent commissions to compensate for the revised surrender value guidelines set by IRDAI. Gaurav Dixit, Director of CareEdge Ratings, stated that significant changes in insurance products and commission structures could be observed that will lead to premium fluctuations in the second half of the current financial year (October 1, 2024 to March 31, 2025).
Fewer policies compared to LIC
Most insurance companies are already preparing to amend their policies in line with the new rules. However, these companies have far fewer policies compared to the life insurance giant LIC. It is being said that adapting to the new regulations will require LIC significant adjustments to its policies.
Who gets the benefit of special surrender value norms?
The IRDAI has introduced new surrender value norms aimed at providing relief to policyholders stuck with unsuitable products, often due to widespread mis-selling in the insurance sector. Under the new rules, policyholders will now receive a higher surrender value when exiting certain policies early. These revised norms will primarily apply to new endowment policies issued after the guidelines come into effect. The move is expected to enhance transparency and provide better returns to those opting to surrender their policies before maturity.
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