Insurance Policy Rules Change: These rules will come into effect from April 1, 2024. These stipulate that if the policy is surrendered or refunded within three years of purchase, the surrender value is likely to remain the same or even less.
The Insurance Regulatory and Development Authority of India (IRDA) has notified various regulations. This also includes charges associated with returning or surrendering the insurance policy. In this, insurance companies have to disclose such charges in advance. IRDAI says that if one keeps the policy for a longer period, the surrender value will be higher. IRDA has taken this decision after concerns raised by life insurance companies.
The six regulations have been combined into a unified framework under the IRDA (Insurance Products) Regulations, 2024. These rules will come into effect from April 1, 2024. These stipulate that if the policy is returned or refunded within three years of purchase, the return value is likely to be the same or even less.
Policies that are surrendered in the fourth to seventh year may see a marginal increase in the surrender value. If the policyholder returns the policy during the policy term, the earnings and savings portion will be paid to him.
Ease of doing business goals
The IRDAI (Insurance Products) Regulations, 2024 aim to enable insurance companies to respond quickly to emerging market demands, improve ease of doing business and promote insurance. IRDAI said in the statement that these rules promote better practices in product design and pricing.
This includes strengthening the rules related to guaranteed value on policy return and special return value. It also ensures that insurers adopt concrete activities for effective monitoring and due diligence.
34 rules replaced by six rules
IRDAI, in its meeting held on March 19, approved eight principle-based integrated rules after a comprehensive review of the regulatory framework for the insurance sector. This will come into effect from April 1. These rules cover aspects such as protection of policyholders’ interests, rural and social sector responsibilities, electronic insurance markets, insurance products and operation of overseas reinsurance branches as well as registration, assessment of insurance risks and premiums, finance, investment and company governance. Important areas are included.
IRDAI said in a statement, this is an important step in the regulatory regime. In this, 34 rules have been changed with six rules. Also, two new rules have been brought to bring clarity in the regulatory scenario. It said the move has been taken after extensive consultations with various stakeholders, including the insurance industry, experts and the public.
Refund amount of total premium paid
For non-single premium
- 30% in the second year.
- 35% in the third year.
- 50% between fourth and seventh year.
- 90% in last two years.
Single premium
- 75% in third year.
- 90% in the fourth year.
- 90% in last two years.
Let us understand this with an example – suppose a 15-year policy with an annual premium of Rs 1 lakh is surrendered in the second year, then the total surrender value will be Rs 30,000 (i.e. 30% of the premium). The surrender charge for the insurer during this period will be Rs 70,000.
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