Personal Finance

Insurance Uncovered

Rajalakshmi Nirmal | Updated on March 25, 2019 Published on March 25, 2019

In your ‘Term of the Week’ article dated March 18, 2019, you explained that IRDAI regulations do not allow insurers to charge for surrender after the first five years. Does it hold true for ULIPs, too?

I had bought a ULIP — Met Smart Plus from Metlife (Now PNB Metlife) — with the date of issue of September 30, 2009. The premium-paying term for this policy is 48 years. The sum assured/fund value (the higher of the two) will be paid upon the insured event (death of the life insured prior to maturity date/policy holder surviving to maturity date). I’ve been paying premiums regularly and the policy is in force. The policy document mentions allowing for surrender with applicable charges. Accordingly, the surrender charge becomes zero after the 11th policy year. Recently, I enquired with the company on surrendering my policy and they said I have to pay the renewal premium until the renewal due date of the 11th policy year — September 29, 2020 — in order to become eligible for a surrender value without surrender charges.

After reading your article, I’m under the impression that I’m eligible to receive the fund value without any surrender charges, according to IRDAI regulations, since five policy years have already been completed. Isn’t the insurer violating IRDAI regulations by levying surrender charges after the fifth year?

Srishyla Melkote V, Bangalore

It is true that there are no surrender charges on ULIPs after the first five years. But the policy you hold is an old ULIP.

Note that it was only in July 2009 that the IRDAI issued its first circular capping surrender charges on ULIPs. In August 2009, it further stated that in unit-linked plans, the surrender penalty shall be zero after completion of five years.

The 2009 IRDAI circulars on charges and the ones that came in early 2010 that increased the lock-in period in the plans from three to five years and other modifications, came into effect only from September 1, 2010.

Even though all products approved by IRDAI before September 2010 got closed for fresh collections, they continued to be in force for former investors and on old guidelines that allowed high surrender charges in the initial years.

Having remained in the policy, we suggest you wait for a year more and exit without any charge.

If you exit now, you will have to cough up 10 per cent of your first year’s premium as surrender charge. This will be deducted from your fund value before it is paid to you.

Today, there are many online ULIPS in the market with very minimal charges, and they are under the new ULIP guidelines. After you exit your policy next year, you may look at some of them such as Bajaj Allianz Life Goal Assure, Edelweiss Tokio Life Wealth Plus, HDFC Life Click 2 Invest and Max Life Online Savings Plan.

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