Insurance Policies: If you cancel your life insurance policy before its original maturity date, you have to pay surrender charges. However, the insurance regulator is now considering reducing this surrender charge. The advantage of this will be that policyholders will be able to go home with a higher portion of the premium paid than before.
If you cancel your life insurance policy before its original maturity date, you have to pay surrender charges. However, the insurance regulator is now considering reducing this surrender charge. The advantage of this will be that policyholders will be able to go home with a higher portion of the premium paid than before. In insurance terminology, surrender charge is the penalty that you pay to the company for premature termination of an insurance policy. The Insurance Regulatory and Development Authority of India (IRDAI) has recently proposed a new regulation for all categories of insurance products.
However, the maximum impact of this regulation is expected to be visible in the traditional endowment category. Endowment policies guarantee a lump sum payout on maturity and also come with profit paying plans. Let us know what is going to change for the insured after this proposal is implemented.
What kind of changes has IRDAI proposed in the surrender rules of traditional life insurance policies?
The change in surrender rules will mean that policyholders who are unable to pay the insurance premium for any reason and wish to cancel it will now have to pay a lower surrender charge as a penalty. With this, they will be able to take home more of the premium paid so far with them.
Understand it this way, if a policyholder wants to surrender his policy after paying the premium for the second year, then as per the rules he will get back only 30% of the total premium paid. However, if IRDAI’s proposal is approved, the refund amount of premium may increase significantly.
IRDAI has said that a premium limit will be fixed for each insurance product. There will be no surrender charge on premium paid in excess of this limit, irrespective of the time at which the insurance policy is being cancelled. However, IRDAI has not yet determined the premium limit. But an attempt has been made to explain this concept to him with an example. You can see this in the chart given below-
What benefits will policyholders get from this new rule?
If a person feels that he has made a mistake in taking the policy, or has been sold the policy fraudulently or is no longer in such a financial position that he can pay the annual premium, then he can easily cancel such a plan. Is. Sabyasachi Sarkar, Appointed Actuary, Go Digit Life Insurance, said, “The existing surrender charges discourage people from taking long-term non-linked plans. However, the new proposal by IRDAI is in the interest of customers. This is because a large portion of such policies lapse or the customers surrender them.”
It has been observed that most of the customers with traditional insurance policies lapse their policy in the 5th year. After the new surrender chart, now these policyholders are expected to get more money than before. For example, Life Insurance Corporation of India (LIC)’s persistence ratio based on number of policies and premium is 42.45 percent and 55.17 percent respectively. The lower the persistence ratio, the higher are the cases of policy lapse. The new surrender rules can definitely provide huge benefits to such insured.
