Irda’s proposal for insurers to fix a surrender value for all linked and non-linked policies could be a game-changer
If you surrender your policy midway, the insurer will have to fix a surrender value for all linked and non-linked policies. The surrender value will be spread over a period of time, which, along with the formula used to arrive at it, will have to be published in the policy document and all other promotional material.
The Insurance Regulatory and Development Authority's (Irda) exposure draft on linked and non-linked products has said that linked products — other than the linked pension product — will acquire a surrender value in accordance with Regulations 14 the Irda Act. Linked pension products will acquire a surrender value in accordance with Regulations 26.
For non-linked insurance plans, the guaranteed surrendered value will be at least 30% of the total premium paid less any survival benefits already paid, if surrendered between the second year and the third year of the policy. The value will be 50% of the total premiums paid less any survival benefits already paid if the policy is surrendered between the fourth and the seventh year of the policy. The surrendered value will be 90% of the total premiums paid less any survival benefits already paid, if surrendered during the last two years of the policy, if the term of the policy is less than seven years.
For all individual non-linked life insurance products, the exposure draft says that immediate annuity products with return of premium on death and pension products other than pure protection products, such as term insurance, health insurance and immediate annuities, will acquire a guaranteed surrender value and a special surrender value.
In products with a premium paying term of less than 10 years, if all premiums have been paid for at least two consecutive years, the policy will acquire a guaranteed surrender value, to which the surrendered value of any subsisting bonus or guaranteed additions, as applicable, will be added.
For other than single premium products, the minimum guaranteed surrender value will be the sum of the guaranteed surrender value and the surrender value of any subsisting bonus or guaranteed additions.
Though the regulator may approve most of the proposals on guaranteed surrendered value mentioned in the exposure draft, life insurers feel that the clause will lead to asset-liability mismatches. TR Ramachandran, MD & CEO, Aviva Life Insurance, says one of