As of today, October 1, life insurance policyholders in India will get advantages due to new regulations regarding surrender values and Tax Deducted at Source (TDS). These changes aim to enhance financial security for policyholders.

The Insurance Regulatory and Development Authority of India (IRDAI) has announced new regulations mandating higher surrender values for endowment policies.

This adjustment allows policyholders better exit options when they choose to discontinue their policies.

Increased surrender values

Under the new regulations, insurance companies must offer a higher surrender value for all endowment policies.

This change means that customers who opt to surrender their policies will receive a more substantial refund.

However, some insurers have voiced concerns. They argue that the higher surrender value could lead to increased premiums, impacting their margins and profitability.

The IRDAI emphasised that these regulations are designed to benefit policyholders and ensure that policies remain viable even if premiums are not paid.

Pankaj Gupta, MD and CEO of Pramerica Life Insurance, said, “These regulations foster a customer-friendly environment and enhance the attractiveness of life insurance in the context of the other financial products available to the customer.”

Gupta indicated that insurers will adapt by reassessing their product offerings to ensure sustainability.

Reduction in TDS rates

In a related development, the TDS on life insurance payouts will decrease from 5% to 2%, effective today. This reduction is part of the recent Budget 2024 proposals and will directly benefit policyholders across the country.

The lower TDS rate means that policyholders will receive larger net payouts upon policy maturity or when claims are settled.

The reduction in TDS will particularly benefit certain groups of policyholders:

Individuals with high-value policies: Those with substantial life insurance policies will see a significant increase in their net payouts due to the reduced TDS.

Policyholders receiving bonuses: Individuals receiving bonuses as part of their insurance policies will also benefit, as the lower TDS results in higher net amounts.

Retirees and senior citizens: Many retirees depend on life insurance payouts for their financial stability.

The reduced TDS rate will provide them with a more substantial income.