IRDA May Do Away with Late Fee and Interest on Policy Revival

Insurance Regulatory and Development Authority (IRDA) in its draft guidelines on product design, has proposed to do away with levying any late fee and interest on revival of a discontinued policy. Draft guidelines have also proposed to increase the time for a customer to revive the policy.

On revival of a discontinued policy, an insurer has to collect all dues and unpaid premiums, but insurers can’t levy late fee and interest. Insurers may levy policy allocation charge and any guarantee charge, if such guarantee is reinstated, but insurers can’t levy any other charge.

However, insurers can collect late fee and interest on discontinued policies that are already in force.

This proposal of IRDA is likely to face opposition from insurers.

IRDA has also asked insurance companies to take written consent from the policyholder 45 days before the end of lock-in period to revive the policy or to pay the fund value.

Insurance policies which have not completed two years of revival period at the end of lock-in period, the insurer have to take the written consent from the policyholder to revive the policy within the two years of revival period. Till such time the fund will remain in the ‘discontinuance policy fund’.

In the case of discontinuance, fund value of an insurance policy is credited to the discontinuance policy fund and proceeds are given only after completion of lock-in period. Proceeds include fund value as on the date the policy has discontinued, after addition of interest computed at minimum interest rate of 3.5% per annum.