Change in rules on surrender value takes effect

Life insurance policyholders are entitled to receive a higher surrender value following new rules from the IRDAI which took effect from 1 October.

Policyholders will now be eligible for a guaranteed surrender value from the first year, even if they have only paid one annual premium. Previously, they received nothing if they surrendered their policy within a year.

Furthermore, policyholders can switch insurers, making portability easier without losing much money.

The higher surrender value is likely to result in a spike in premiums by insurers, industry sources say. This is because it could hit their profitability.

At the same time, holders of traditional life insurance policies are likely to see a fall in returns on both participating and non-participating products.

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