Posted on July 3, 2012 by Akanksha
From October 2012 all existing life insurance products will have to go for a complete overhaul, as Insurance Regulatory and Development Authority (IRDA) has come out with new draft guidelines on life insurance products. These draft guidelines have recommended some path-breaking regulatory changes including increasing minimum death benefits, capping agent’s commission and banning of highest Net Asset Value (NAV) products.
All life insurance companies will have to re-file there existing products to the IRDA for approval by 30 September 2012. However, there will be no restriction on the sale of these products during the transition period. But those existing products that are not modified shall not be sold after 30 September 2012 and all the products currently filed with the regulator but not yet cleared will have to be re-filed afresh to comply with the new guidelines.
Draft guidelines
As per the draft guidelines, for all non-linked life insurance products, minimum death benefit during the entire term of the policy can’t 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 year specified in the policy.
For Unit-linked 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 charge levied to the policy account. The life insurer will have to send the statement of the policy account to the policyholder at the end of the every reporting year.
IRDA has also said that insurer can’t give any loan to the policyholders under unit-linked products. However, insurers can offer policyholder’s 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 policyholders, either directly or indirectly. A policy will be considered split if multiple policies of same nature sold at the same time.
Draft guidelines have also recommended that to revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee. However, insurer can levy policy administration and premium allocation charges and any guarantee charge, if any such guarantee is reinstated. For policies which have not completed two years revival period at the end of lock-in period, the insurer will have to take written consent from the policyholder to revive the policy immediately or revive within the two-year revival period.
IRDA also said that insurers can’t 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 mode, insurer may accept three month premium in advance only on date of the commencement of the policy.
Draft guidelines also said that non-linked policies with the premium payment term of ten years or more should acquire Guaranteed Surrender Value (GSV) after the receipt of third annualized premium. For products with premium paying term of less than ten years should acquire GSV after the receipt of second annualized premium. All single premium paying products should acquire surrender value at the end of the first year itself. However, surrender value will not be applicable to regular pay protection products like term insurance products, health insurance products and immediate annuities without death benefits
vinay mohanty
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