What is the new surrender value rule of IRDAI?

The new surrender value rule by IRDAI mandates that life insurance policies, including endowment and traditional policies, must have a minimum surrender value, which should be paid after a certain number of premium payments, ensuring more protection for policyholders.

What happens if a life insurance policy cash value is surrendered?

If a life insurance policy's cash value is surrendered, the policyholder receives the surrender value, which is a portion of the premiums paid, minus any applicable charges. However, the coverage is terminated, and no further benefits are payable.

What is the surrender value after 5 years?

The surrender value after 5 years typically depends on the policy type and insurer’s terms. In many cases, after 5 years of paying premiums, the policyholder is entitled to a substantial portion of the premiums paid, although it may still be less than the total premiums paid.

What is the surrender value of a life insurance policy?

The surrender value is the amount a policyholder receives if they decide to cancel their life insurance policy before its maturity date. It is calculated based on the premiums paid, policy type, and the length of time the policy has been in force.

Will the new surrender value rule apply for existing endowment policies?

Yes, the new surrender value rule applies to existing endowment policies as well. However, the exact details and benefits may vary depending on the insurer’s provisions and the policyholder’s payment history.

What is Rule 45 of IRDAI?

Rule 45 of IRDAI relates to the provisions for life insurance policies that are surrendered, ensuring transparency and fairness in the calculation of the surrender value. It lays down guidelines for insurers on how to treat policyholders who surrender their policies, ensuring they receive a fair value.

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IRDAI's Revisions To Life Insurance Surrender Value Payments. What Policyholders Need To Know

Neha Gupta

Author

Updated: 12-10-2025 at 11:30 PM

The new revisions by the IRDAI, which brought in how much amount life insurers must pay to policyholders, aim to provide better financial protection for customers and prevent mis-selling of unsuitable policies. Here is a breakdown of the key alterations and what they mean. Let us read and understand more about it.

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Minimum Payouts After One Year

Previously, life insurers were not required to provide any payment to customers who surrendered their policy within the first year. However, under the new rules, policyholders will be entitled to receive at least the Special Surrender Value (SSV) if they choose to exit after 12 months of premium payments.

The SSV considers accrued bonuses and paid-up policy value at the time of surrender, providing customers with a fairer minimum amount rather than nothing at all in the first year. This protects individuals' interests if emergency circumstances force an early cancellation.

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Calculating The Surrender Amount

Insurers must now ensure that SSV figures equal or exceed the expected present value of future benefits from both the paid-up sum assured and accrued policy perks. Customers will receive their rightful share of the policy's current worth in real terms.

Guaranteed Surrender Values also have to reasonably reflect long-term protections and value for continuing versus discontinuing customers. Insurers must balance fair exit payments with retaining business.

To calculate surrender value, divide the number of total paid premiums by the assured sum and then add any existing bonuses. The resulting amount is then multiplied by the surrender value factor. This quickly gives you the exact surrender amount.

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Discouraging Misleading Sales Practices

The regulator seeks to address mis-spelling grievances partly attributed to misinformation around surrender charges driving lapses or surrenders. Insurers now need consistency across all policy durations and identify what drives complaints to curb unsuitable advice.

While lower charges may hurt profits initially, focusing on suitable advice and maintaining customer trust long-term better serves policyholders and the industry alike. Higher SSVs can also help deter mis-selling by providing a better safety net for those sold inappropriate policies.

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Objectives Of IRDAI's Life Insurance Surrender Value Reforms

Provide Minimum Payouts After One Year

Policyholders can now receive at least the Special Surrender Value if exiting after 12 months of premium payments. This protects customers in vulnerable first-year situations.

Ensure Fair Calculations of Surrender Amounts

Insurers must guarantee that Special Surrender Values match or exceed the present estimated future benefits of paid-up amounts. Customers receive their fair share of a policy's current worth.

Reasonably Reflect Long-Term Value for all Policyholders

Guaranteed Surrender Values must consider ongoing protections and exit/continuation value prudently in a prudent manner for different customer situations.

Address Mis-Selling and Unsuitable Advice

Insurers need measures to identify and curb the root causes of irregular selling complaints, such as unclear surrender implications. This deters poor conduct.

Balance Stakeholder Interests Sustainably

The regulations aim to provide suitable consumer safeguards while supporting insurers' responsible business operations in the long run.

Strengthen Consumer Trust in the Sector

Fair surrender practices and tackling issues strengthen integrity; boosting trust benefits customers, insurers and the market overall.

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Conclusion

In conclusion, IRDAI's revisions aim to balance insurers' and customers' interests through fairer surrenders, particularly in vulnerable first-year exits. Setting minimum standards and tackling the root causes of mis-selling strengthens the protections for individuals and the sector's integrity.

Read here in detail about the IRDAI revision of norms for policyholders.

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