From October, all existing life insurance products will have to go for a complete overhaul as the Insurance Regulatory and Development Authority (IRDA) has come out with new draft guidelines on life insurance products.
Apart from increasing the minimum death benefit, the regulator has capped the agents’ commission, banned further selling of highest NAV guaranteed products and, to revive a discontinued policy, the insurer can now collect only the unpaid premium and cannot charge any interest or a fee.
All life insurers will have to refile their existing products to the regulator for approval before September 30. However, there is no restriction on sale of these products during the transition period. But those existing products that are not modified shall not be sold after September 30 and all the products that are current filed with the regulator but not yet cleared will have to be refiled afresh to conform to the new guidelines.
The draft guidelines on the design of life insurance products says that life insurance is a mechanism to provide solutions so that enough financial resources are available to an individual or his family when the same is needed during various phases of life.
“There is no substitute to life insurance and, hence, it plays a significant part in enabling a financially healthy and self-respectful society. The structural design of an insurance product should, therefore, be in a manner that policyholders’ financial goals are met first while returns to other stakeholders are generated,†the Irda note underlines.
Under the new draft guidelines for all non-linked life insurance products, the minimum death benefit during the entire term of the policy cannot be less than the sum of basic sum assured and additional benefits, if any. For additional benefits accrued during the term, the declaration will have to be either at the beginning of every quarter or half-yearly or the year specified in the policy.
For unit-linked insurance products, an explicit mortality charge will be levied every month to the policy account and the mortality charge will be guaranteed for the entire term of the policy. Apart from mortality charge, there will not be any other explicit charges levied to the policy account. The life insurer will have to send the statement of policy account to the policyholder at the end of every reporting year.
The regulator has made it clear in the draft guidelines that insurers cannot give any loans to policyholders under the unit-linked insurance products. While insurers may offer policyholders a flexibility to alter the premium payment term according to their underwriting policy on alteration of policy conditions, the minimum payment term will not be less than five annual premiums. Splitting of policies will not lead to any increase in fees or charges for the policyholder, either directly or indirectly. A policy will be considered split if multiple policies of the same nature are sold at the same time.
To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee. However, the insurer can levy policy administration and premium allocation charges and any guarantee charge, if such guarantee is reinstated. For policies, which have not completed two years of revival period at the end of the lock-in period, the insurer will have to take written consent from the policyholder to revive the policy immediately or revive it within the two-year revival period.
The regulator has also made it clear that insurers cannot collect advance premium for both linked and non-linked insurance products. The premium may be accepted within 30 days of the payment due date. For the monthly premium payment mode, the insurer may accept three months’ premiums in advance only on the date of commencement of the policy.
Non-linked products with a premium paying term of 10 years or more will acquire a Guaranteed Surrender Value (GSV) after the receipt of the third annualized premium. For products with a premium paying term of less than 10 years, the GSV will be applicable after the receipt of the second annualised premium. All single premium products will acquire a surrender value at the end of the first year itself. However, surrender value will not be applicable to regular pay pure protection products like term insurance, health insurance products and immediate annuities without death benefits.
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