Policyholders to get higher surrender value from today

However, the higher surrender value is likely to result in a spike in premium by insurers. Some insurers had taken up the hike in surrender value to IRDAI asking the regulator to review the decision. Insurance funds are supposed to be long-terms funds lasting for 20 to 25 years. If the insurer shells out higher surrender value, it could impact its margins and profitability, according to an insurance source.

According to IRDAI, “surrender value” means an amount, if any, that becomes payable in case of surrender in accordance with the terms and conditions of the policy.” All existing policies will have to comply with the norms by September 30 and new policies will have to offer new surrender value from October 1.

“Every policy offered by life insurer under a non-linked platform which has acquired a surrender value shall not lapse by reason of non-payment of further premiums,” the regulator said in a circular. It should be kept in force to the extent of paid-up sum assured, calculated by means of a formula as approved by the Authority and the reversionary bonuses or the guaranteed additions, if any, that have already been attached to the policy, IRDAI said.

Currently, policyholders get a lower amount when they discontinue the policies.

Conjeevaram Baradhwaj, Executive Vice President (Legal & Compliance), Future Generali India Life Insurance Company, said, “surrender value is the amount which the policyholder gets if he stops paying premiums, after paying premium for a minimum period.”

However, interest is payable on policy loans and interest rate is around 9 per cent to 10 per cent p.a. compounding yearly. Customers can repay the policy loan whenever they would like to. “However, if the loan is not repaid and if the outstanding loan and loan interest equals the surrender value, the policy is foreclosed by adjusting the outstanding amount against the surrender value,” he said.

Rating firm CareEdge said the product and commission structure could likely witness significant changes, leading to volatile premium movement in the second half of the current fiscal. However, as these changes are anticipated to be favourable for customers, the growth is likely to rise over the medium term, it said.

The firm anticipates that the life insurance industry will sustain a growth rate of approximately 11-13 per cent over the next three to five years. There is likely to be increased emphasis on the agency channel, driven by banks’ focus on deposit gathering and companies’ efforts to reduce reliance on bancassurance. “Meanwhile, any potential adverse macroeconomic conditions could impact growth. Despite these challenges, the medium-term outlook remains positive overall,” CareEdge said.

In a circular issued last year, IRDAI had asked life insurers to stop accepting loan repayments against insurance policies made via credit cards as many customers paid insurance premium using the credit card and later defaulted on repayment.

New business premium of life insurers was Rs 377,960 crore during the fiscal ended March 2024, according to data available from Life Insurance Council.