3 THINGS TO CHECK BEFORE YOU EXIT YOUR POLICY

If you think that the insurance policy you bought doesn't quite align with your goals, you may surrender it. But that comes at a cost. Here's why you should do the calculations

- Nidhi Sinha

One of the biggest challenges that investors in insurance policies face is the lack of liquidity. Though they are allowed to surrender their policy at any time, the charges to do so are so high that most prefer to remain locked into it. Such situations are not uncommon because a lot of policies are pushed to young people by their elders, or, mis-sold with the promise of higher market-linked or guaranteed returns.

So, when the Insurance Regulatory and Development Authority of India (Irdai) issued a proposal in December 2023, reducing surrender charges—which meant an increase in the surrender value (SV)—the move was welcomed and considered a step in the right direction. Irdai proposed a guaranteed surrender value (GSV) and asked insurers to refund premiums exceeding a certain threshold to policyholders.

But the hopes of receiving a higher SV were dashed when Irdai seemingly gave in to industry pressure and came up with the final surrender norms in March 2023, which are broadly in line with the existing ones.

Since nothing has really changed now and Irdai’s final move is not to the advantage of policyholders, the onus is once again on investors themselves to do their due diligence in the face of mis-selling and understand complex policies on their own.

But Mahavir Chopra, founder, Beshak.org, an insurance platform, doesn’t think that increasing the SV is a solution to mis-selling. “It will be like treating the symptom, not the disease. If the focus is to encourage need-based purchase of insurance and reduce mis-selling, increasing SV won’t solve the problem. In fact, it can be used to mis-sell further. A higher SV will also reduce returns for serious customers. The real solution is to enforce clear communication of benefits and limitations in a plan with customers before they buy, and to enforce persistency-linked commission and revenue structures.”