IRDAI Announces Final Surrender Charges for Life Insurance Products

The Insurance Regulatory and Development Authority of India (IRDAI) has unveiled the conclusive surrender charges for non-linked or linked life insurance products, specifically traditional endowment policies. These charges are slated to come into effect from April 1, 2024, marking a significant development for life insurance companies in India.
 
Under the latest guidelines issued by the regulator, the surrender values will largely remain consistent with the existing surrender charges. Emkay Global, in its research report, noted that the IRDA (Insurance Products) Regulations, 2024, are maintaining the status quo concerning the surrender values of non-linked or linked life insurance products.
 
Here's a breakdown of the surrender charges as per the new regulations:
1. Surrender during the second year: 30% of total premiums paid.
2. Surrender during the third year: 35% of total premiums paid.
3. Surrender between the fourth and seventh years: 50% of total premiums paid.
4. Surrender during the last two years: 90% of total premiums paid.
 
For instance, if a policyholder pays an annual premium of Rs1 lakh and decides to surrender the policy after two years, they will receive only 30% of the premiums paid, amounting to Rs60,000, after having paid a total of Rs2 lakh in premiums over two years.
 
This finalization of surrender charges deviates from an earlier proposal by the IRDAI in December, which suggested a "threshold limit" to reduce surrender charges on traditional plans. The proposed threshold would have allowed policyholders to receive higher returns upon early policy termination, but the finalized regulations maintain the existing surrender value structure.
 
The move has been met with mixed reactions, as while it provides stability for insurance companies, it offers limited relief to policyholders seeking higher surrender values. The earlier proposal aimed at giving policyholders greater flexibility and better exit options from mis-sold policies, but the final regulations seem to prioritize maintaining the status quo.
 
Overall, the finalized surrender charges reflect a balance between the interests of insurance companies and policyholders, albeit with a preference for stability and continuity in the insurance sector. The implementation of these regulations from April 1, 2024, will shape the dynamics of surrender values in the life insurance landscape going forward.

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25th Sept 2020
 
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