Plugging gaps

Written by fe Bureau | Updated: Jun 25 2013, 11:06am hrs
After coming out with the final guidelines on linked and non-linked products in March this year, the insurance regulator has now issued some clarifications.

The minimum death benefit, in case of non-participating products for people below 45 years, during the entire term of single-premium products where the policy term is more than five years but less than 10 years, will be highest of five times the annualised premium or 105% of all the premiums paid as on date of death or the minimum guaranteed sum assured on maturity or any absolute amount assured to be paid on death.

In the earlier gazette notification, it was mandated as the highest of 10 times the annualised premium or 105% of all the premiums paid as on date of death. Even in participating products for people below 45 years, the minimum death benefit has been reduced to five times the annualised premium or the minimum guaranteed sum assured on maturity or any absolute amount assured to be paid on death.

Similarly, in non-participating products for people above 45 years, the minimum death benefit will be the highest of five times the annualised premium or 105% of all the premium paid as on date of death or the minimum guaranteed sum assured on maturity or any absolute amount assured to be paid on death. In case of participating products, the death benefit will be the highest of five times the annualised premium or the minimum guaranteed sum assured on maturity or any absolute amount assured to be paid on death.

In case of suicide within 12 months of taking the policy, the nominee or beneficiaries of the policyholder will be entitled to at least 80% of the premiums paid, provided the policy is in force. Also, for policies issued on minor life, the date of commencement of risk may start anytime within two years.

The provision of a minimum sum assured on death will not be applicable to reduced paid-up policies, pension products, all types of immediate annuity products and decreasing cover term insurance products. However, for all individual pension products, the minimum benefit payable on death will not be less than 105% of all premiums paid as on death.

In case of group credit insurance products and group term insurance products with other than single premium payment products, the policy term will not be less than five years.

Except for one-year renewable group products, all single-premium group credit insurance products and single-premium group term insurance products, the policy term will not be less than two years. Also, except for single premium products, the premium paying term for all long-term group and individual products will not be less than five years.

For one-year renewable group term insurance and one-year group health insurance, the maximum commission or remuneration will not be 2% of premiums paid during the first year and 2% of premium paid during the subsequent renewals with a ceiling of R50,000 per scheme in each year.

Insurance companies cannot collect advance premium and it will be collected within the same financial year. The premium collected in advance will only be adjusted on the due date of the premium and the commission will only be paid on such due date.

The premium may be accepted within 30 days of the payment due date. 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 that 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 within the two-year revival period.

For pension products, insurers will have to offer cover throughout the deferment period or may offer riders. The sum of all the rider premium attached to the pension product cannot exceed 15% of the premium paid for the pension policy. Such rider premiums will be separately accounted for and cannot be included in arriving at the assured benefit.

Analysts say the recent clarifications will bring much-needed transparency in non-linked polices where a large number of misselling is taking place after curbs were placed on unit-linked plans in 2010.

In fact, in 2007-08, while unit-linked plans accounted for over 75% of the total first-year premium, traditional plans accounted for 84% of the total premium premium in 2011-12. The curbs on Ulips ensured that insurers had to cut commission they paid to agents from as much as 40% from the first-year premium to around 5% now, making it less attractive.