Life insurance policies: Turning a new leaf

Saikat Neogi Posted online: Monday, Sep 30, 2013 at 0000 hrs
All new life insurance policies — linked and non-linked — will come with added benefits once Irda’s new product guidelines kick in from October 1. Under the guidelines, all new insurance products will be divided into three broad categories — traditional, variable and unit-linked plans.

Insurers will have to withdraw all existing products and come out with new ones. However, they will continue to renew old policies where the contract had already been made with the policyholders. At the time of renewal of group policy, the insurer will have to give the policyholder an option to switch to the modified version. And where the policyholder does not switch to the modified version, the insurer will have to take a specific written consent that he/she will continue with the old policy.

Under the new Insurance Regulatory and Development Authority (Irda) guidelines, all traditional products will have a higher death cover. For regular premium policies, the cover will be 10 times the annualised premium paid for those below 45 and seven times for others.

For all unit-linked insurance products, life insurance companies will have to inform policyholders about the reduction in yield of their products on a monthly basis. Also, under the new norms, all variable insurance plans will guarantee a certain minimum rate of return at the beginning of the policy.

All variable insurance products will be treated at par with Ulips and these products will also follow the same commission package currently applicable for Ulips. The new norms have reduced the commission on short-term policies and linked the quantity of commissions to the premium paying period for all products.

For Ulips, the lock-in period will continue to be five consecutive years from the date of commencement of the policy. Also, during this period, the proceeds of discontinued policies cannot be paid to the insured, except in the case of death or any other contingency covered under the policy.

All individual non-linked life insurance and pension products will have a minimum surrender value based on the premium paying term. For products with a premium paying term of 10 years or more, if all the premiums have been paid for at least three consecutive years, the policy shall acquire a guaranteed surrendered value.

Similarly, for products with a premium term of less than 10 years, if all premiums have been paid for at least two consecutive years, the policy shall acquire a guaranteed surrender value of any subsisting bonus.

For pension products, companies will have to offer insurance cover throughout the deferment period or offer riders. The sum of all rider premiums 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.

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 a guarantee is reinstated.

For policies that have not completed two years of revival period at the end of the lock-in, the insurer will have to take written consent from the policyholder to revive the policy immediately or within the two-year period.

Anup Rau, chief executive officer of Reliance Life Insurance, says the new guidelines will serve the long-term purpose of life insurance protection and fulfillment of long-term goals. “The new guidelines will promote need-based selling and higher life insurance cover, offer better surrender values and improved disclosures and provide simpler and more customer-friendly insurance plans,” he says.

Health insurance: Some modifications

The insurance regulator has done some modification to the new regulations on health insurance issued in February. Under the revised guidelines, all new individual health insurance policies, except those with a tenure of less than a year, will have a free-look period and this will be applicable at the inception of the policy. Also, cumulative bonus will not be allowed on benefit-based policies with the exception of personal accident cover.

Irda has also clarified that health insurance providers will have to provide coverage to non-allopathic treatments. But to avail of the cover, the policyholder will have to get the treatment done in a government hospital or in any institute recognised by the government or any accredited institute by the Quality Council of India or the National Accredition Board on Health.

The revised guidelines, which were issued in response to representations by the industry to the regulator, will be applicable with immediate effect.

What the guidelines say

* All new insurance products will be divided into three broad categories — traditional, variable and unit-linked plans

* Insurers will have to withdraw all existing products and come out with new ones

* However, they will continue to renew old policies where the contract had already been made with the policyholders

* All traditional products will have a higher death cover

* For regular premium policies, the cover will be 10 times the annualised premium paid for those below 45 and seven times for others

* For all Ulips, companies will have to inform policyholders about the reduction in yield of their products on a monthly basis. Also, under the new norms, all variable insurance plans will guarantee a certain minimum rate of return at the beginning of the policy

* All variable insurance products will be treated at par with Ulips and these products will also follow the same commission package currently applicable for Ulips

* The new norms have reduced the commission on short-term policies and linked the quantity of commissions to the premium paying period for all products.

* For Ulips, the lock-in period will continue to be five consecutive years from the date of commencement of the policy

* For pension products, companies will have to offer insurance cover throughout the deferment period or offer riders

* The sum of all rider premiums 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.

To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee