IRDAI Retains Surrender Values For Life Insurance Policies As Industry Concerns Grow

The Insurance Regulatory and Development Authority of India (IRDAI) has announced the retention of existing surrender values for life insurance policies. This move comes following concerns raised by life insurers regarding potential higher short-term exits by policyholders. 

The regulator also greenlit the sale of Index Linked Insurance Products, wherein the Net Asset Value (NAV) is linked to publicly available indexes. This decision is expected to bring innovation and diversification to the insurance market, offering new avenues for policyholders.

The draft regulations initially proposed higher surrender values for policyholders, triggering apprehensions within the industry about increased short-term exits from long-term life insurance policies. However, after considering feedback from industry stakeholders, IRDAI decided to retain the existing surrender values.

Under the revised guidelines, the guaranteed surrender values for regular pay and single premium products have been outlined. For instance, the surrender value for regular pay policies ranges from 30 per cent in the second year to 90 per cent during the last two years, while for single premium products, it stands at 75 per cent within three years and 90 per cent within the last two years of the policy period.

Further, IRDAI has stressed the importance of guaranteeing benefits in non-linked insurance savings products in absolute terms at the policy's inception. This move aims to provide policyholders with clarity and certainty regarding the benefits they can expect.

Regarding pension products, IRDAI mandates defined assured benefits payable either on death, health contingency, or upon vesting, ensuring transparency and customer protection. Additionally, insurers are instructed to classify all insurance products into linked and non-linked categories and maintain separate discontinued funds for pension products, other life insurance products and health insurance products.