Life insurance companies had opposed IRDAI’s proposal of special surrender value. They complained that they would suffer huge losses if it was implemented. But now IRDAI has approved most of the proposals with some changes.
There is good news for the customers of life insurance companies. If a customer decides to close the policy after a few months or after buying it, then he will now get more money from the insurance company. Insurance regulator IRDAI has accepted most of the proposals for higher special surrender value (SSV) for endowment policies. This was introduced last month. Life insurance companies had opposed these proposals.
More benefit on surrender in the initial years
This decision of IRDAI means that after buying a policy from a life insurance company, if the customer feels that the policy is not good or for some reason he is unable to pay the premium, then he will get more money on surrendering the policy. Under the rule that was in force till now, if the policy was closed after one or two years, then the customer would incur a huge loss. The customer would get back only a nominal part of the premium he had paid.
Most policyholders discontinue their policies in the initial years
An executive of a private life insurance company said, “Now policyholders will get more money than before on surrendering the policy. It has been observed that a large number of policyholders stop paying the premium after some time of buying the policy. Such people will now benefit a lot. There will be more benefit if the policy is closed in the initial years. There will be benefit even if the policy is closed later but it will be less than in the initial years.”
Special surrender value is determined based on the formula
IRDAI has said that the Special Surrender Value (SSV) should be at least equal to the paid-up sum assured and paid-up future benefits. There is a formula for calculating the paid-up value. The number of premiums paid is multiplied by the sum assured. The number obtained is then divided by the premium amount paid.
Life insurance companies opposed the proposal
While this step of the insurance regulator is in the interest of policyholders on one hand, on the other hand it is harmful for life insurance companies. Life insurance companies had recommended several changes in the proposal of IRDAI. But, the insurance regulator refused to accept them. Now according to the proposal approved by IRDAI, if a policyholder has paid a premium of Rs 10,000 in a year, then the life insurance company will have to return 78 percent of the money to the policyholder on surrendering the policy.
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