Insurance Board Trims Policy Bonus on Surrender

Kathmandu: The Insurance Board has trimmed the bonus receivable during life insurance policy surrender.

It has made amendments of the method of calculating the bonus amount of policy surrender following the request of the life insurance companies.On the lobby of Life Insurers Association of Nepal(LIAN).The Board has served the interest of the insurers.

A policy is supposed to be surrendered when an insured refuses to continue life insurance policy till maturity and submits application to the insurer for return of the money paid.

The Insurance Board has changed the bonus amount calculation method from annually to monthly through the ‘Life Insurance Directive 2078’ issued on July 2021. When determining the surrender value of an insurance policy, the insurers used to calculate the bonus amount annually.Now as per the provision, it is being calculated on a monthly basis.

Earlier, when an insured paid the premium for 5 years, the insurers used to pay the full bonus amount of 5 years incase of policy surrender.An insured pays five annual premium installments within four years from the date of policy issue.
Before the implementation of the new arrangement, the insured used to get the full bonus amount for 5 years, but now they will get the bonus for 4 years only and for the fifth year, the bonus will be calculated based on the complete months on the date of policy surrender.

Suppose that an insured with a 15 years term’s endowment policy of Sum Assured of Rs.5 lakh; surrenders the policy immediately after one month of the payment of fifth annual premium. The insured will get the bonus of 49 months only i.e. Rs.1,22,500.But before the issuance of the life insurance policy directive, the insured used to get a full five-year bonus of Rs.150,000.
According to the new calculation method, the bonus amount received by the insured is lesser by Rs. 27,500. So, it is the pure saving from the perspective of the insurers.

As there’s a high rate of policy surrender, most of the life insurance companies will be making enough money from the new provision of bonus amount calculation for policy surrender.

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