Recently, the Insurance Regulatory and Development Authority of India (Irdai) issued new regulations on the surrender value of life insurance contracts. This new regulation was issued after several amendments and was published on Wednesday. IRDAI stated that provision of policy loan is mandatory for life insurance products. The new regulations stipulate that insurers can settle their claims within 7 days, while surveyors can submit their reports within 15 days.
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People are not familiar with insurance return policy and insurance return value, then know about them-
You are watching: IRDAI announces new surrender value rules: Check how it will impact life insurance policy holders
What is the insurance surrender value?
Insurance surrender value is the amount of money the insurance company pays to the policyholder when they decide to cancel the policy before it matures. The final amount is calculated based on the premium they paid and how long they held the policy. This concept applies primarily to life insurance policies that have a savings component, such as whole life insurance, endowment policies, and universal life insurance.
How is surrender value calculated?
To calculate the Surrender Value, there are several factors included-
- Accumulated premium: Part of the insurance premium paid by the policyholder. It has been allocated to the savings or investment component of the policy.
- Bonuses and dividends: It is declared by the insurance company and added to the cash value of the policy.
- Interest earned: Value of interest earned on the amount paid under the contract.
- Surrender fee: Fee deducted by the insurance company when terminating the contract early. These fees are typically higher in the early years of the contract and decrease over time
– Formula for calculating surrender value:
- Surrender value=Accumulated premium+Bonus and interest−Investment fee
Types of surrender values
There are two types of Surrender Values - Guaranteed Surrender Values and Special Surrender Values.
- Guaranteed Surrender Value: This is the minimum amount that the insurance company must pay. The insurance company guarantees payment if the policy is canceled. It is a fixed percentage of the total premium paid and is specified in the policy document. For example, it goes up to 30% of the total premium paid after the first three years.
- Special Return Value: Higher than Guaranteed Return Value. It does not have a fixed percentage, it is based on performance, duration and other factors of the policy. Insurance companies decide that at the time of taking out the Surrender policy.
Things to keep in mind when canceling your Policy
There are a few things to keep in mind when canceling your life insurance policy and receiving surrender value. We will explain every detail.
Check the refund amount upon cancellation: Be sure to verify the surrender value amount before canceling your life insurance policy. Policy documents often include information about the amount of surrender value. You can also ask your insurance provider. It may be a good idea to monitor changes in the surrender value of your insurance policy over time, even if you don’t plan to cancel immediately. For example, you can cancel your policy at that time and use the surrender value to remodel your home if you know when you will receive value that exceeds the total premiums you paid. pay.
You will be subject to tax if you profit from the surrender value: Please note that you will make a profit and will be subject to income tax as a lump sum income if the surrender value you receive is greater than the total premium you paid. The lump sum income amount is the amount remaining after deducting the single lump sum income deduction from the surrender value you receive, as well as the full amount of premiums you paid. However, after deducting the taxable amount, it will be half of the remaining amount. Please note that additional gross income as well as surrender value are included in the amount of this special gross income deduction. For example, the profit is 750,000 if the surrender value is 5.75 million, the surrender rate is 115% and the total premium paid is 5 million. Taxable income is half this amount, minus 500,000 or 125,000. In theory, you must file a tax return if you have taxable income; However, if you are self-employed and your gross income is less than 200,000, you are exempt from filing taxes.
Gift tax may be imposed in lieu of income tax if the individual receiving the surrender value is not the person who paid the premium. If your taxes are due in the calendar year, gift tax will be applied to the surrender value less the 1.1 million base deduction.
Three strategies to increase the value of your surrender
Getting the maximum amount of surrender value is always preferable. There are a few things to consider to do this.
Sign up while you’re young: In general, your return rate will be lower the longer you participate. Therefore, your ROI will increase if you get in early and pay over a longer period.
Reduce insurance premium payment time: Reducing premium payment time is an additional option. For example, the rate of return will be better if you set premium payments at age 60 or 65 instead of paying over your lifetime. But note that you will pay higher monthly premiums if you reduce your payment period.
Consult experts: When purchasing insurance, there are many points to consider, such as surrender value, required coverage, and premium. If you want the coverage and premiums to suit you and want maximum investment value, the quickest way is to consult a professional. If you are considering whether to cancel your current insurance, we recommend consulting with a specialist.
Source: https://anhngunewlight.edu.vn
Category: Blog