The Insurance Regulatory and Development Authority (Irda), in revised draft guidelines on the design of life insurance products, has proposed a minimum guaranteed surrender value for traditional policies, significantly higher than what is being practiced by insurers.
Accordingly, an insurer will have to pay back at least the premium amount if a policy has been active for more than seven years. Policy holders would get back as much as half their premiums if a policy has been active for at least three years.
In the revised draft, Irda has proposed all individual non-linked life insurance and pension products shall acquire a minimum guaranteed surrender value (GSV). Unit linked insurance plans already have a minimum GSV.
“The minimum guaranteed surrender value would be 50 per cent of the total premiums paid if policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 75 per cent of the total premiums paid and if surrendered during the fifth to the seventh policy year, it would be 90 per cent of total premiums paid. If surrendered thereafter, it would be 100 per cent of the total premiums paid,” the draft norms said.