How are Long Duration Funds for investment, who should invest?

After proposing a change in surrender value norms late last year, the Insurance Development and Regulatory Authority has retained surrender values guidelines for life insurance policies, according to a notification. This follows concerns raised by insurance companies.

IRDA also allowed the sale of index linked insurance policies, whose NAVs are linked to pubicly avaibale indexes.

IRDA went back on its own proposals which could potentially hand out higher surrender values to policyholders. The insurance companies had raised concerns with IRDA, saying this would lead higher short-term exits by life insurance policyholders.

Under the new proposals, if a policyholder has paid premiums for 3 years, he would get 30-35% of the total deposited amount and if surrendered in the 4th or 7th year, the surrender value can be up to 50% of the total amount and 90% during the last 2 years. For single premium products, the guaranteed surrender value will be 75% of the total premium paid if surrendered within three years, 90% within the last two years of the policy period.

The draft regulations had proposed higher surrender values for policyholders, which could have encouraged exits from long-term life insurance policies in the short term, industry had represented. However, after considering industry’s feedback that could be caused by increased surrender values, IRDAI decided to retain it.

In case of discontinuation in linked policies after 5 years, the regulator has said that customer can surrender and surrender value, which is unit fund value on the date of surrender paid or if the customer does revive the policy within 3 years of first unpaid premium, policy should terminate and fund value should be paid at the end of revival period.