October 1, 2024, marks a significant change in the Life Insurance Policy rules. According to the new special surrender value norm, a policyholder will get a higher refund if they exit their life insurance policy after the first year. They will get the surrender value even if they have paid only one annual premium.
Previously, this facility was available to the shareholders from the second year onwards. There will be three benefits of implementing the new guaranteed surrender value rules. The policyholders will be able to easily surrender the policy, will get more refunds and it will also be easier to change the plan. These changes will particularly impact traditional life insurance products. These include the bonus-based (par) and non-participating (non-par) policies. The non-participating policyholders will face a 0.3-0.5 per cent drop in the returns.
The above change in rules can be best understood by this example. A policyholder bought a 10-year policy with a sum assured of Rs 5,00,000. In the first year, he paid a premium of Rs 50,000. As per the old rules, if the policyholder had exited the policy after one year, he would not have received any refund. That implies that he would have suffered a loss of Rs 50,000. However, according to the new rules, the policyholder will receive a refund even if he leaves the policy after one year. If the insurance company has received the premium for the entire year, then it will have to return Rs 31,295 to the policyholder.
Abhishek Kumar, a SEBI-registered investment adviser and Founder of SahajMoney.com talked to The Economic Times about it. According to Abhishek, “According to the earlier rules, 50 per cent of total premiums must be paid if a policy surrendered between the fourth and seventh years. You would have got Rs 1.2 lakh back (50% of the total premium of Rs 2 lakh and a bonus of Rs 40,000) if you had left the policy after four years, according to previous surrender value norms. With this special surrender value norm now, you will get back Rs 1.55 lakh.”
All the insurance companies have to comply with this new surrender value norm.
