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In a previous instalment of CoverNote we saw some of the new measures that the insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), is bringing into force for life insurance policies. They aim at making things better and easier for the customer and reinforce existing measures.
One of the main points the June 12, 2024 master circular introduced was that policies should acquire a surrender value once the first-year premium is paid, and even during the first policy year, given some terms and conditions.
In an earlier instalment of CoverNote we saw in detail how there are good options to consider before surrendering a life insurance policy and terminating the coverage.
There could be many factors that lead to a decision to surrender a life policy. Wrong policy, unsuitable terms and conditions, unaffordability of premium and so on.
In that instalment we had emphasised that, if at all, surrender should be the very last option and other ways and means to keep the policy live by addressing the other problems should be looked at.
If you think you bought the wrong policy, see if you can make it ‘paid-up’. This is possible if the policy has been in force for a pre-decided period of time. This way you can freeze the policy as it stands with no future premium obligations, but life coverage will continue for the same policy period but at a lower sum assured. You will claw back some value and continuing coverage is always an asset.
The other suggestion was that if you can’t afford to keep up the premium payment, maybe temporarily, try to see if you can take a loan on the policy and use those funds to pay a few instalments of the premium until things take a turn for the better and you can afford the premium instalments.
What if no loan is possible on the policy? That was a dead-end, but no more. The new circular says that “all non-linked savings products offering surrender value shall have the facility of policy loan based on the eligible surrender value”.
Loans, however, will not be allowed in unit-linked insurance policies, and that is a point to note.
Loan facility should now be made available also for Annuity products (pension policies, in other words) where you have chosen the ‘Return of Purchase Price’ option.
We will see more on the new measures for annuity policies in the next instalment of CoverNote.
(The writer is a business journalist specialising in insurance & corporate history)
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