Posted on June 25, 2012 by Akanksha
Soon new category of life insurance product is expected to be introduced – Index Linked Insurance Plans.
Draft guidelines on product design have provided an outline of this product. According to it these plans will be linked to indices approved by Insurance Regulatory and Development Authority (IRDA) – a fact that would be disclosed to policyholder upfront. It will be predominantly linked to G-Secs.
Plan will operate like bank account where each policyholder will have separately managed account. The account value will reflect the premium paid by the policyholder as well as interest gained from the particular index to which the fund is linked.
Policyholder will not require to pay any explicit charges, other than mortality charge which will be deducted from amount earned. Take for instance you have paid premium of Rs 1,000 and out of which Rs 100 is deducted as mortality charge, and now assume that fund is linked to ten-year government security yield curve and generates 8% interest. The insurer will deduct a certain sum from the amount earned say 2%. The money in your account at the end of the year will be Rs 954. Rs 54 that you have earned as 6% of Rs 900 (after deducting the mortality charge).
Draft Guidelines have also specified that the policy document will contain the benefit table showing how the fund will work and benefit you will earn throughout the policy term.
Insurance companies will be required to send the statement of policy account to the policyholder at the end of every reporting period.
Minimum death benefit under new plan will be same as in the case of Unit-Linked Insurance Plan (ULIP) which is ten times of the life cover or sum assured at present.
The solvency requirements will also be in line with ULIPs, at present for non-guaranteed ULIPs, the solvency requirements stands at 0.8% of the total reserve or 0.2% of sum at risk. And products that come with upfront guarantees like highest Net Asset Value (NAV) should have a solvency requirement of 1.8% of the total reserve.
The solvency margins are the total amount that an insurance company is required to keep aside to meet future claims or redemptions by policyholders.
However, insurers have sought more clarity on proposed category from IRDA on accounting and reporting norms.
Draft guidelines on product design have provided an outline of this product. According to it these plans will be linked to indices approved by Insurance Regulatory and Development Authority (IRDA) – a fact that would be disclosed to policyholder upfront. It will be predominantly linked to G-Secs.
Plan will operate like bank account where each policyholder will have separately managed account. The account value will reflect the premium paid by the policyholder as well as interest gained from the particular index to which the fund is linked.
Policyholder will not require to pay any explicit charges, other than mortality charge which will be deducted from amount earned. Take for instance you have paid premium of Rs 1,000 and out of which Rs 100 is deducted as mortality charge, and now assume that fund is linked to ten-year government security yield curve and generates 8% interest. The insurer will deduct a certain sum from the amount earned say 2%. The money in your account at the end of the year will be Rs 954. Rs 54 that you have earned as 6% of Rs 900 (after deducting the mortality charge).
Draft Guidelines have also specified that the policy document will contain the benefit table showing how the fund will work and benefit you will earn throughout the policy term.
Insurance companies will be required to send the statement of policy account to the policyholder at the end of every reporting period.
Minimum death benefit under new plan will be same as in the case of Unit-Linked Insurance Plan (ULIP) which is ten times of the life cover or sum assured at present.
The solvency requirements will also be in line with ULIPs, at present for non-guaranteed ULIPs, the solvency requirements stands at 0.8% of the total reserve or 0.2% of sum at risk. And products that come with upfront guarantees like highest Net Asset Value (NAV) should have a solvency requirement of 1.8% of the total reserve.
The solvency margins are the total amount that an insurance company is required to keep aside to meet future claims or redemptions by policyholders.
However, insurers have sought more clarity on proposed category from IRDA on accounting and reporting norms.
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