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IRDA proposes minimum surrender value for traditional plans

The regulator has proposed all individual non-linked life insurance and pension plans shall acquire a minimum GSV

August 09, 2012 2:09 IST | India Infoline News Service
The Insurance Regulatory and Development Authority (IRDA), in revised draft guidelines on the design of life insurance products, has recommended a minimum guaranteed surrender value (GSV) for traditional policies, which would be comparatively higher than what is being paid by insurers at present.

According to the revised draft guidelines, an insurer will have to pay at least the premium amount if a policy has been active for more than seven years. Further, minimum GSV would be 50% of the total premiums paid if policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 75% of the total premiums paid and if surrendered during the fifth to the seventh policy year, it would be 90% of total premiums paid. If surrendered thereafter, it would be 100% of the total premiums paid.

This would be applicable to products with a premium paying term (PPT) of 10 years and more if all premiums have been paid for at least three years regularly and less than 10 years if all have been paid for at least two consecutive years.

However, minimum GSV would not be applicable to products like term insurance, health insurance products and immediate annuities without death benefit. The regulator has proposed all individual non-linked life insurance and pension plans shall acquire a minimum GSV. ULIPs (unit linked insurance plans) already have a minimum GSV.

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