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Insurance regulator IRDA on Thursday asked life insurers not to levy any charge on customers if they surrender their policies from fifth year.
"No surrender charge can be levied by an insurer for policies surrendered from the fifth policy year and thereafter the policyholder will be entitled to receive the full fund value on such surrender," the Insurance Regulatory and Development Authority (IRDA) said in a circular to all life insurers.
Moreover, IRDA gave some breather to insurers by excluding the charges levied by these firms on their customers for incidents like death and disability from overall limit on charges on their ULIP schemes, the products that are invested in the capital markets.
"Mortality and morbidity charges may be excluded in the calculation of the net yield," IRDA said.
Mortality is the probability of death, while morbidity is the probability of disability. The insurance companies levy mortality and morbidity charges on the customers and these charges increase with the age of the policyholders.
"It will positively impact customers' benefits. The exclusion of mortality and morbidity charges from the cap will ensure that there is no compromise on growth in sales of valuable life cover," Debashis Sarkar, senior director and chief marketing officer, Max New York Life Insurance said.