From April 1, 2024, the surrender value is expected to remain the same or even lower if policies are surrendered up to a period of within three years, as per IRDAI.

The Insurance Regulatory and Development Authority of India (IRDAI) has announced the final set of rules on surrender value. From April 1, 2024, the surrender value is expected to remain the same or even lower if policies are surrendered up to a period of within three years.

A surrender value in insurance is the sum disbursed by the insurer to the policyholder when terminating the policy prematurely. If surrendered during the policy term, the policyholder receives the earnings and savings component. This provision offers a way to access funds in case of need before the policy matures. 

The IRDAI has said that if policies are surrendered between the fourth and seventh years, the surrender value may see a marginal increase. For non-single premium life insurance policies, a guaranteed surrender value will be provided upon payment of premiums for at least two consecutive years.

The proposed slabs for the surrender value percentages are:

> 30% of total premiums paid if surrendered during the second year.
> 35% of total premiums paid if surrendered during the third year.
> 50% of total premiums paid if surrendered between the fourth and seventh years.
> 90% of total premiums paid if surrendered during the last two years

In December 2023, IRDAI had released a consultation paper proposing to increase the surrender value paid by life insurance companies to its policyholders. 

IRDAI decided to retain the regulations after it suggested a hike in the initial proposals in the draft regulations in surrender values. This was not taken nicely by the industry players and raised worries about potential higher short-term exits by policyholders.

Besides this, the regulator has also permitted sale of Index Linked Insurance Products, where the Net Asset Value (NAV) is linked to publicly available indexes.

On non-linked insurance products, IRDAI has stated that benefits in non-linked insurance savings products should be guaranteed in terms of an absolute amount at the policy’s inception to give policyholders clarity and certainty regarding the benefits they can expect.

For savings products, excluding terms with the return of insurance premium, the IRDAI has noted that survival & maturity benefits should be guaranteed and result in a non-zero positive return to policyholders to ensure that policyholders receive value from their savings products.

The regulator has also stated that pension products issued to individual customers should have defined assured benefits, which could be payable either on death or any health contingency, if covered. 

Besides, the assured benefits should be payable upon vesting under non-linked pension products, with the exception of linked pension products where it is optional to pay the defined assured benefit upon vesting.