As per a latest Irda notification, insurers can now collect premium for a maximum three months in advance for both linked and non-linked plans. However, the premiums collected in advance can only be adjusted on the due date and commission to agents paid after that.
The Insurance Regulatory and Development Authority (Irda) has said that advance collection will be allowed only for the premium due in the same financial year. However, in cases where the premium due for the next financial year is being collected in the current fiscal, the insurer can collect the premium for a maximum period of three months in advance of the due date.
Also, the premium collected in advance will have to be adjusted on the due date and not from the date of clearing of the cheque. The commission to the agent will have to be paid after adjustment of premium on the due date only.
In February last year, the regulator's gazette notification for both linked and non-linked insurance policies had underlined that advance premium collection will be accepted only 30 days before the due date.
For the monthly premium payment mode, the insurer can accept three months' premiums in advance only
on the date of commencement of the policy, if it is a monthly mode of payment and is allowed under Irdaís file-and-use procedure.
Similarly, for unit-linked insurance policies, the gazette notification had mandated that units be allocated on the day the proposal is accepted and the premium money adjusted. Also, the premium will have to be adjusted on the due date even if it has been received in advance and the status of the premium received will have to be communicated to the policyholder.
Insurers, especially, in non-life category, try to collect the premium in advance by offering discounts. This ensures that the policyholder does not switch to another insurer. Analysts, however, say Irdaís move for 30-day advance payment was done to prevent mis-selling as agents often entice policyholders with discounts. State-owned Life Insurance Corporation had, at one point of time, allowed premium payments five years in advance for its traditional policies.
The 30-day advance premium collection norms in February last year had rattled the industry, which had argued that companies ask salaried employees for investment proof by end of January. So, employees often pay premiums in advance to get a receipt and claim tax deduction. Also, employees often find it convenient