IRDA proposes ban on surrender recycling

Sources:
Business Standard

Times of India

IRDA Draft Circular 

Replacement of a life insurance policy means an intermediary, agent or an insurer selling a new policy within six months of surrender of the earlier policy, entailing modification in the terms resulting in reduction of the benefit amount of the existing policy.

Irda asked insurers not to withhold any part of the surrender value payable to the policyholder towards the cost of a new policy.

In cases where it is unavoidable, the regulator has asked the insurer to document the entire process and submit to the policyholder a document highlighting the loss he will suffer and the reason for recommending the new policy.

A policyholder who is not properly guided by the existing life insurance company has the right to exercise the restoration of the existing policy within seven days from the receipt of the new one.

The policy that was replaced and restituted is entitled to all such benefits that is otherwise eligible had the policy been not replaced for taking a new policy. A policyholder who has exercised the restitution of the replaced policy is entitled to total refund of premiums, without any recoveries, on returning the new policy at his option.