The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a new exceptional surrender value (SSV) rule, effective October 1, 2024. This move benefits policyholders by providing higher refunds and the flexibility to switch plans.
Exceptional Surrender Value (SSV) Explained
SSV is the amount returned to policyholders when they surrender their traditional endowment policies. The new rule mandates higher refunds calculated based on the paid-up sum assured, paid-up future benefits, and accrued/vested benefits.
Calculation of Special Surrender Value
The formula for calculating SSV is as follows:
Paid-up value = (Number of premiums paid × Sum assured) / Total number of premiums payable
The present value of the paid-up sum assured and paid-up future benefits is calculated using a maximum spread of 50 basis points (bps) over 10-year Government Securities (G-Sec). The applicable SSV will be reviewed annually based on prevailing 10-year G-Sec yields.
Impact on Policyholders
Abhishek Kumar, Founder of (SahajMoney.com), illustrates the benefits:
“Earlier, surrendering a policy between 4-7 years would fetch 50% of total premiums. Now, policyholders can get up to 77.5% of total premiums.”
Example:
– Total premium: ₹2 lakh
– Bonus: ₹40,000
– Previous refund (after 4 years): ₹1.2 lakh
– New refund (after 4 years): ₹1.55 lakh
Key Benefits
– Higher refunds for policyholders
– Flexibility to switch plans
– Increased transparency
Who Benefits?
The new SSV norms primarily benefit policyholders who:
– Purchased new endowment policies after implementation
– Were mis-sold policies and want to exit
Policyholder Protection
Irdai has mandated insurers to:
– Mention policy-wise guaranteed surrender values (GSV), SSV, and payable surrender values in benefit illustrations
– Create personalized benefit illustrations for potential policyholders
– Obtain signatures from policyholders and insurance agents/intermediaries on benefit illustrations
Implementation
Insurers must implement the new SSV rule by September 30, 2024.
Expert Insights
Vivek Jain, Head of Investments at (link unavailable), notes:
“The new SSV norm significantly increases the value returned to policyholders, making life insurance more customer-friendly.”
Rakesh Goyal, Director of (link unavailable), adds:
“This move benefits policyholders stuck with wrong products due to mis-selling.”
Conclusion
The new special surrender value rule empowers policyholders with higher refunds and flexibility, enabling them to make informed decisions about their life insurance policies.
