The Insurance Regulatory and Development Authority of India (IRDAI) has announced significant changes to life insurance policies, bringing good news for policyholders who decide to exit their policies early. This new mandate increases the special surrender value (SSV) for traditional endowment policies, ensuring higher payouts for early exits.
Higher Surrender Value for Early Exit
Policyholders now have the benefit of receiving a higher surrender value if they choose to exit their life insurance policies early. This change means that even if a policyholder surrenders their policy after just one year, they will receive a portion of their premium back. This adjustment aims to provide better protection and fairer returns for policyholders who opt out early.
An HDFC Life spokesperson expressed confidence in mitigating the impact on the company’s new business margin (NBM), stating that the measures are expected to positively influence the long-term growth prospects of the industry. The changes are designed to benefit policyholders, particularly those who surrender their policies within the early years.
New Requirements and Customer Benefits
The IRDAI now requires life insurers to offer a Customer Information Sheet (CIS) to policyholders. This document, similar to what is provided by health and general insurers, will clearly outline the policy’s clauses, benefits, premiums, and terms in simple and concise language. This initiative aims to enhance transparency and ensure that customers fully understand their policy details.
Introduction of New Insurance Products
In addition to the higher surrender value mandate, the IRDAI has also allowed insurers to design new insurance products. These include index-linked plans and variable annuity payout options, providing policyholders with a wider range of investment and payout choices. The regulator has introduced stricter penalties for insurers in cases of customer grievances, further protecting policyholder interests.
Industry Response and Impact
While the industry anticipates a gross impact of approximately 100 basis points on new business margins due to the higher surrender values, there is confidence in the ability to mitigate this impact without compromising customer value. The CEO of a leading private life insurance company noted the increased reserving and capital requirements, acknowledging the challenge of recouping upfront commissions in the initial years.
Despite initial opposition from life insurers, who argued that these products are designed for long-term goals rather than liquidity, the new regulation is expected to provide substantial benefits to policyholders who surrender their policies early. The increase in the surrender value will also apply to policies surrendered in later years, though the increment will be comparatively lower.
