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IRDA: Traditional plans to acquire surrender value before completing 3 yrs

If the policyholder has a premium payment term of less than ten years, then he would be eligible for a GSV by the end of second year

May 24, 2012 5:13 IST | India Infoline News Service
The Insurance Regulatory and Development Authority (IRDA) has suggested that all traditional policies—such as endowment, money back, etc— shall acquire surrender value before completing three years.
In a draft guideline on product designs, IRDA said, “Regular pay products and limited pay products with a premium payment term (PPT) of ten years or more will acquire a GSV (guaranteed surrender value) on receipt of the third-year premium.”
Earlier, the policyholder had to wait for the completion of the third years to get the surrender value. But according to the new move, the policyholder will get a relief of one year in case he chooses to surrender the policy.
On the other hand, if the policyholder has a PPT of less than ten years, then he would be eligible for a GSV by the end of second year.
Surrender value is what the policyholder gets if he chooses to terminate or stops paying the premium before the term ends. In this case, what the policyholder gets is 30%-35% of all premiums paid minus the first year’s premium. With this, insurers offer a special surrender value which is calculated after considering the current market value of assets held against the policy.
IRDA also plans to relax surrender value norms on single premium policies. So, if the circular comes into effect, all single premium policies will acquire a surrender value at the end of the first year. The existing regulation insists a payout of the amount only after three years.

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