The Insurance Regulatory and Development Authority (IRDA) in its draft norms for traditional products has proposed an increase in agents commissions and a reduction in surrender value of policies. Surrender value the amount the policyholder will get from the life insurance company if he decides to exit the policy before maturity.
The minimum commission for agents has been increased from 14% of the premium for the first year to 15% for five-year premium-paying term policies. IRDA has also proposed a specific commission for each year starting from a five-year premium paying term to 12 years plus premium paying term.
Earlier, five to nine years, 10 to 14 years and 15 years and above were classified as one category with a common commission. In the present draft, IRDA has specified commission for each year separately and has increased the commission rates. IRDA has proposed 30% as surrender value for policies that are active for three years down from 50%.
The insurance regulator had said all individual non-linked life insurance and pension products should acquire minimum guaranteed surrender value (GSV). The GSV is a sum of guaranteed surrender value and the surrender value of the any subsisting bonus already attached to the policy. Unit-linked insurance plans already have such a minimum guaranteed surrender value.
According to draft norms, the minimum GSV would be 30% of the total premiums paid less any survival benefits paid, if the policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 70% of the total premiums paid less any survival benefits already paid. If surrendered during the fifth to the seventh policy year, it would be 90% of total premiums paid, less any survival benefits already paid.
