Suppose you have bought a policy from one of the life insurance companies (classic endowment) and wish to surrender it, what do you do?

Go to the life insurance company and say “i wish to surrender this plan please”. They then follow a very complicated path and tell you how much they will pay you. This is called surrender value.

Beware this is a black box and if you are not an actuary, do not even attempt to understand it. To make things simple let us accept that this could be a ridiculously low figure. If you have paid Rs. 100,000 as a premium for say 6 years (it is a 27 year plan) think you should get back at least Rs. 6L, right?

Wrong, completely wrong. They are perfectly capable of telling you ..’sorry we will pay you only Rs. 4.3 lakhs. Sometimes even lower. No questions can be asked, because the company has a black box.

If you are not happy with the price you should be able to go and sell it in the market, right (Viaticals)? No. You cannot sell, it can only be given back to the issuer (welcome to the protected world of life insurance).

In the UK and USA you could just walk to a life broker and sell the policy. I in my personal capacity may be willing to pay Rs. 5.36L – and keep the policy. I may have to pay the premium for the next 5 years..and if this person kicks the bucket..well you make money quickly.

India had no competition in Life Insurance, so the great indian insurance company made sure that no viaticals market is created. Vaat to apni lagi na!! However now you see the smart Indian private sector companies also making crores in surrendered plans…will Irda look into this please? read on…

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  1. Good point subra…I had not even imagined such institutions are possible. IRDA should move quickly and allow establishment of viaticals. On the flip side, I remember that my friend had to hypothecate his life insurance policy to IDBI bank to secure his home loan (long time back, in 2000). In that case, if he died, would IDBI have collected the insurance proceeds? Or did IDBI just collect it for withholding in case he died so that his relatives would have to come to IDBI?

  2. Since when did Subra BEGIN to expect the Regulator to work in customer’s interest?

    Gosh, What is this world coming to.. Ghor kalyug hai bhai.


  3. when this viatical industry is brought in, politicians will use their goondas to buy the policy & ensure they make a profit!!!

  4. the regulator will not want such a thing set up. Why? the biggest loser will be LIC – the strongest player. However if somebody was to set up, IRDA should have some norms. I think the norms will come only after a terrible haphazard system is in place. Hey that is life…!

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