You will get more money even if you leave your LIC policy midway, know the rules
Under IRDAI's new rules, termination of a life insurance policy will now result in a higher surrender value than before. This will reduce losses for policyholders and provide them with a better refund.
Life insurance is now not only a source of protection but also a valuable investment. However, sometimes financial constraints make it difficult to continue a policy, forcing people to terminate it mid-term. Now, the losses in such situations will be reduced because the rules have changed.
Major change in surrender value rules
IRDAI has made significant changes to the rules related to policy surrender value, which are effective from October 1, 2024. Now, policyholders will be refunded a higher amount under Special Surrender Value (SSV).
what is the difference between before and now
Previously, there was little or no refund for policy closure in the initial years. However, under the new rules,
- Partial refund possible even after 1 year
- About 30% after 2 years
- 35% after 3 years
- Up to 50% in 4 to 7 years
- Up to 90% returns before maturity
For example, earlier, on surrendering in 4 years, an investment of Rs 4 lakh would yield around Rs 2.4 lakh, now it can increase to around Rs 3.1 lakh.
What is surrender value
When a policy is discontinued before maturity, the amount returned by the insurance company is called the surrender value, which depends on the period for which you have paid premiums.
minimum payment rule
Now, companies will have to return an amount at least equal to the Paid-Up Sum Assured. This means that if you take out a policy for ₹10 lakh and pay premiums for two years, you could receive up to ₹2 lakh.
How will SSV be decided?
SSV will be calculated annually and linked to government bond yields. Insurance companies can add up to a maximum of 0.50%.
Emphasis on transparency
Under the new rules, insurance companies must clearly inform customers at the time of policy purchase how much they will receive if they discontinue the policy.
The new rules have significantly benefited policyholders. Now, even if they are forced to discontinue their policy, their money will not be lost as before; instead, they will receive it back with a better return.