Buying Life Insurance In 2025? Know These Key Changes From 2024

The insurance sector in India is undergoing a transformation. With significant regulatory changes introduced in 2024, life insurance in 2025 comes with new benefits and a few considerations for those who are planning to buy one. Whether you’re purchasing a policy for the first time or reassessing your financial planning, here’s a comprehensive look at what’s new and what it means for policyholders.

Changes In Surrender Value Norms

One of the most significant changes in the life insurance sector is the introduction of a new surrender value norm that came into effect starting 1 October 2024.  

What is Surrender value? It refers to the amount the insurer has to pay to the policyholder when the latter decides to fully withdraw or terminate the policy before the term (maturity) ends. If the policyholder decides on a mid-tenure surrender, then the sum distributed towards earnings and savings would be given to the policyholder.

This is what has changed in the surrender value norms;

1) Early Surrender: Policyholders are now eligible to receive a surrender value after completing just one policy year. You are only eligible for this if you’ve paid one full year of premium.

2) Higher Payouts: According to the new regulations by Irdai, Special Surrender Value has to be calculated to ensure it is at least equal to the present value of the paid-up sum insured and accrued benefits of the policyholder. 

This calculation includes many factors, namely, future benefits, accrued bonuses and any survival benefits already paid. Also, the interest rate used in this calculation cannot be over the prevailing yield on 10-year government securities (G-sec) plus 50 basis points.

For instance, policyholders of non-participating, guaranteed-return endowment plans will now receive higher payouts if they decide to exit their policy prematurely.

Take this example: if you have purchased a guaranteed endowment policy with a tenure of five years, paying an annual premium of Rs 1.2 lakh, you would previously get no premium refund if you surrendered the policy in the first year. However, under the new norms, you’ll now receive around Rs 1.08 lakh in the first year, assuming a G-sec rate of 7.2 per cent and a discount rate of 7.7 per cent. 

This change not only enhances flexibility but also provides greater financial security for policyholders who may face unforeseen circumstances.

Changes Related To TDS on Life Insurance

In Budget 2024-25, the government introduced some key changes in the Tax Deduction at Source which also impacted the life insurance plans. Here’s what has changed for the life insurance sector; - The TDS rate for insurance payouts exceeding Rs 1 lakh has been slashed from 5 per cent to 2 per cent. This means policyholders will retain more in-hand income from their survival and maturity benefits, making endowment and participating insurance plans more lucrative. - Policies issued after April 1, 2023, now come with a condition, if your annual premium exceeds Rs 5 lakh, the maturity benefits will be taxable, alongside the 2 per cent TDS. However, policyholders should note that premiums below this threshold will be eligible for tax-free returns under Section 10(10D).

How’s the Outlook for 2025?

Says Sumit Rai, MD & CEO, Edelweiss Life Insurance, “In 2024, the adoption of advanced technologies—from AI-driven analytics to streamlined operations, has redefined customer experiences.” He states that insurers are now better equipped to offer personalized products and improve accessibility, particularly in rural areas.  Looking ahead to 2025, initiatives like the proposed Insurance Laws (Amendment) Bill are expected to further accelerate the industry’s growth by addressing capital requirements, FDI limits, and distribution frameworks. With the changes introduced in 2024, 2025 presents new opportunities for policyholders. From higher early exit payouts to tax benefits and digital innovations, these reforms ensure greater value and convenience for individuals.

Adds Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance, "2024 was marked by significant reforms and policy changes. Initiatives by both Irdai and the Indian Government have focused on enhancing customer experience, expanding insurance access across all segments, and adding greater value to the products customers purchase. The industry demonstrated remarkable agility in adapting to these reforms, and I believe this adaptability will remain a key strength, ensuring the delivery of long-term benefits to customers.

As you step into 2025, it’s crucial to stay informed and make decisions that align with your financial goals. Before purchasing any life insurance policy, it is important to understand the new norms and choose a policy that not only provides security but also complements your investment strategy.