IRDAI has released a set of draft product regulations that will force insurers to review their profit margins and rejig distributor commissions. In this draft circular, the regulator has suggested changes in surrender value rules for non-linked life insurance policies.
Under the current draft IRDAI regulations on non-linked insurance products, surrender values are determined based on a percentage of premiums paid by the policyholder, which increases with the number of premiums paid. For instance, surrendering the policy in the first year yields no surrender value, but it increases to 30% for the second year, 35% in third year and so on.
The existing framework aims to provide only a percentage of surrender value based on the premiums paid.