Insurance surrender value: What it means for policyholders?

IRDAI's new norms will help policyholders as they can get a higher refund on discontinuation under the new calculation method even after paying one year premium AFTER many a dilly-dallying and revision spanning close to three years, the new surrender value norms by regulator Irdai, which is effective from October 1, will significantly alter the life insurance landscape.

- BENN KOCHUVEEDAN

The new norms mandate life insurers to pay back higher amount to a policyholder who chooses to switch or surrender her policy. This goes a long way to protect customer interest and make insurers become more professional and also contain misselling, one of the biggest pains plaguing the insurance sector.

For the uninitiated to the life insurance lexicon, the surrender value is the money a policyholder receives if she terminates her policy before maturity.

It's usually the cash value of the policy minus any surrender fees/penalties. The new norms will also help a life policyholder in many more ways including higher early-exit payouts with higher surrender value, easier portability, lesser deductions and penalties, and fewer chances of misselling as the agent may lose money if the policyholder stops paying premium early, and the customer, if not made the king yet, is assured of getting a fair treatment.

New regulations

The Insurance Regulatory and Development Authority of India (IRDAI) released new regulations on the surrender value of life policies in June 2024 with effective implementation from October 1. The initial draft was out in December 2022 which proposed a higher surrender value but underwent many revisions.