Get more if you surrender life cover with new norms

MUMBAI: Life insurance policyholders will receive better surrender values after a one-year period and find their policies to be more liquid investments following an overhaul of norms by regulator Irdai.
On Wednesday, Irdai issued a new master circular on life insurance products to address the pain points of those who have purchased life insurance policies.The new norms require insurers to ensure that the special surrender value is at least equal to the paid-up sum assured, paid-up future benefits and accrued and vested benefits. The free-look period – which provides time to review the policy terms and conditions – is now increased to 30 days from 15 days earlier.
In the past, policyholders suffered huge losses if a policy was discontinued after a year. Now, however, the higher surrender value norms make it unprofitable for insurance companies to have customers who seek to discontinue their policy after a year and hence, incentivise them to increase their business’s persistency.
To ensure policyholders have access to liquidity in emergencies, all non-linked savings products offering surrender value shall have the facility of a policy loan based on the eligible surrender value. They would also provide for partial withdrawal from pension plans for emergency reasons such as higher education, marriage, purchase/construction of a house or treatment of illness.
Irdai, in a statement, said that the new rules establish mechanisms to improve persistency, curb misselling, avoid financial loss to policyholders, and enhance long-term benefits for them. To facilitate financial planning and enhance the flexibility in premium payments, insurers are now permitted to offer products with a range of premium payment term.
The overhaul of life insurance product norms comes in the wake of the regulator making health and general insurance norms more customer-friendly. Just like in health and non-life covers, Irdai has directed companies to improve their grievance redressal mechanisms. “In case the insurer does not appeal against the award of insurance ombudsman and does not implement the same within 30 days, a penalty of Rs 5,000 per day shall be payable to the complainant,” the circular said.