Question: Last year my father faced a financial emergency and took the maximum loan available against his life insurance policy. At the time, the policy had a Guaranteed Surrender Value of Rs 6,00,000 and as per the policy terms, he was eligible to borrow up to 60% of that amount. At the time the loan was granted, the insurer's applicable policy loan interest rate was 10% per annum. My father has not made any re payments over the past year and now is planning to surrender the policy completely. After adjusting the outstanding loan amount and the accrued interest, how much money will the insurer finally pay to him as the net surrender value?
Answer: As per the policy terms, the maximum loan available is 60% of the Guaranteed Surrender Value.
Guaranteed Surrender Value = Rs 6,00,000
Loan Taken = 60% of Rs 6,00,000 = Rs 3,60,000
Since no loan repayments were made during the year, interest in charged on full amount.
Interest for 1 Year = 10% of Rs 3,60,000 = Rs 36,000
Total Outstanding Loan Amount = Rs 3,60,000 +Rs 36,000 = Rs 3,96,000
When the policy is surrendered the insurer will deduct the outstanding loan amount along with the accrued interest from the surrender value.
Net Surrender Value Payable = Rs 6,00,000 - Rs 3,96,000 = Rs 2,04,000
Therefore the policyholder will receive Rs 2,04,000 as the final surrender payout.

Supporting evidence:
title: old.irdai.gov.in/138N051V01.pdf
quote: The maximum loan available will be 60% of the Surrender Value at the time of loan application in the event the Policy is surrendered or on the Date of Maturity, the outstanding loan amount togetherwithinterestoutstandingthereonwillbeadjustedbytheCompanyfromtheSurrenderValueor MaturityValuepayable,asthecasemaybe TheinterestchargedonloanwillbedecidedbytheCompanyfromtimetotimebutwillnotexceedyieldto maturityon10yearG-Secplus4%perannum
context: daystillsurrenderfromthelastPolicyanniversary.
ThisproductalsoprovidesearlySurrenderValues.TheguaranteedsurrendervaluefactorsforSumAssured andbonusandguaranteedadditionsaregivenin Appendix1

C.6Loan

Policyholder can avail loan against the Policy from the fourth Policy Year subject to the following terms and conditionsandonsuchothertermsandconditionsasmaybedecidedbytheCompanyfromtimetotime:
- a. ThePolicyshallbeassignedabsolutelytoandheldbytheCompanyassecurityfortherepaymentofloan andoftheinterestthereon;
- b. The maximum loan available will be 60% of the Surrender Value at the time of loan application. The minimumloanamountwillbeRs.5,000/-
- c. TheinterestchargedonloanwillbedecidedbytheCompanyfromtimetotimebutwillnotexceedyieldto maturityon10yearG-Secplus4%perannum.
- d. In the event of death of the Life Assured, the outstanding loan and the interest thereon shall be adjusted fromthebenefitspayableunderthePolicy.
- e. Similarly, in the event the Policy is surrendered or on the Date of Maturity, the outstanding loan amount togetherwithinterestoutstandingthereonwillbeadjustedbytheCompanyfromtheSurrenderValueor MaturityValuepayable,asthecasemaybe.
- f. If at any point of time, the outstanding loan amountplusinterestexceedstheSurrenderValue,thePolicy willterminate.
- g. IncaseofPaid-UpPolicies,ifoutstandingloanamounttogetherwithinterestexceedsSurrenderValueat anypointintimethePolicywillterminatewithoutacquiringanyvalue.
CompanywillinformthePolicyholderbeforeterminatingthePolicy.

C.7PaymentofPolicyPremium

ToenjoyuninterruptedbenefitsunderthePolicy,YouarerequiredtomakepaymentofthePolicyPremium onorbeforetheduedateorwithinGracePeriod.
Policyholder can pay the Policy Premium in annual mode, semi annual mode or monthly mode. The modal factorapplicabletothepremiumpaymentmodesotherthanannualmodewillbeasunder:
- a. SemiAnnualPremium=BasePremiummultipliedby0.512
- b. MonthlyPremium=BasePremiummultipliedby0.087
If any amount received towards Policy Premium is less than the due Policy Premium, the same will not be accepted and in such cases the Policy Premium will be treated as unpaid. If the amount received towards PolicyPremiumismorethantheinstallmentdue,theexcessamountwillberefundedtothePolicyholder.No interestorrewardispayableontheexcessamountreceived.
ThePolicy Premium in advance will be accepted only if the Due Date for the same is falling within the same financialyearinwhichitispaid.

G.5InsuranceOmbudsman

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