Starting Tuesday, new guidelines regarding cancellation of insurance policies will come into effect. It is estimated that this may increase the insurance premium or reduce the commission of insurance agents. Earlier this year, the Insurance Regulatory and Development Authority of India (IRDAI) had introduced revised guidelines on ‘surrender value’ to provide better returns to policyholders who cancel their life insurance policies early.
What is the meaning of “salvage value”?
‘Surrender value’ in insurance means the amount paid by the insurance company to the policyholder if the policy is surrendered before the policy maturity date. If the policyholder decides to return the policy while it is in force, a portion of the income and savings will be given to him or her. The regulator has underlined the need for insurance companies to ensure “fairness and value for both outgoing and continuing policyholders” when deciding the amount to be returned upon surrender.
What will the change be?
A senior official of a private sector insurance company said that to offset the revised surrender charge, life insurance companies will increase the premium amount or reduce the commission of their agents. Gaurav Dixit, director, CareAge Ratings, said significant changes can be seen in the insurance product and commission structure. Due to this, there may be fluctuations in premiums in the second half of the current financial year.
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Most insurance companies have made preparations to change their policies to comply with these provisions. Most of these companies have a limited number of policies compared to life insurance giant LIC. At the same time, LIC has to do a lot of work to change its policies to comply with the regulator’s instructions.
