If you bought your unit-linked insurance plan (Ulip) after 1 September 2010 and it has been discontinued due to non-payment of premiums, there may still be time to revive it. The Insurance Regulatory and Development Authority (Irda) has extended the revival period for discontinued Ulips (within the five-year lock-in period) from a month to two years or until the lock-in period, whichever comes first. Says Irda chairman J. Hari Narayan: “The idea behind giving an extension in the revival period is to discourage early surrenders. Policyholders will stand to lose if they discontinue their policy in the early years because of the discontinuance charge. Hence, it was felt they should be given more time to revive their policies.”
Additionally, Irda has allowed for a fund management charge on the discontinued fund—the invested corpus of the policyholder goes to a discontinued fund that offers a minimum guarantee until the lock-in period of five years. The guidelines will be effective from 1 November.
IRDA chairman, J Hari Narayan (file photo). Bharath Sai/Mint
A look at how you can revive your policy and what charges you will need to bear.
For policies bought after 1 September 2010
If you had bought after September 2010, your policy would be within the lock-in period of five years. If you skip paying a premium, you will get a grace period of 30 days. After this, the insurer will send you a notice within 15 days and you will get another 30 days to pay your premium (initial 75 days). Thereafter, your policy will be considered discontinued and the funds will move to a discontinued fund.
Once the proceeds of your policy move to the discontinued fund, you will have two years or until the expiry of the lock-in period, whichever comes first, to revive your policy. If you do not revive your policy during this period, the insurer will return the invested corpus after the lock-in period. This means if you skip paying your premium in the fourth year, you will have only a year to revive your policy.
Says Andrew Cartwright, appointed actuary, Kotak Life Insurance Co. Ltd: “On expiry of the notice period, the fund will move to the discontinued fund and the policyholder will have two years to revive the policy. During the initial notice period, the cover will be applicable, but it will cease once the policy becomes discontinued and the proceeds move to the discontinued fund.”
Charges: There are typically three kinds of charges that apply to a discontinued policy: discontinuance charge, fund management charge and revival charge.
On policies less than five years old, all three charges are applicable. If the policyholder doesn’t revive the policy within the notice period, a discontinuance charge is deducted before the fund moves to a discontinued fund. This charge is in the range of Rs 6,000 in the first year to Rs 2,000 in the fourth year. From the fifth year, there is no discontinuance charge. The insurer will deduct this charge before moving the funds to the discontinuance fund. If the policyholder decides to revive the policy in the two years, then this charge gets added back.
As per the guidelines, insurers will need to give a minimum interest as applicable to savings bank accounts of State Bank of India. For this, Irda has allowed insurers to levy a fund management charge of up to 50 basis points per annum (one basis point is one-hundredth of a percentage point). The fund management charge is not reversible.
However, the proceeds of discontinued policies can’t go below the guaranteed threshold.
At the time of reviving your policy, you may need to pay a revival charge. But if the policyholder doesn’t revive the policy, then both discontinuance and fund management charges are applicable and the fund will be paid after the lock-in of five years gets over.
For policies that are more than five years old
Once your policy completes five years and goes beyond the lock-in, the extension of two years won’t apply. Upon skipping a premium, you will get 75 days to revive the policy. Thereafter, the insurer will pay you the fund value and the policy will terminate. Says Gaurav Rajput, director, marketing, Aviva Life Insurance India Co. Ltd: “For policies more than five years old, there will not be any extension. The idea is to discourage early surrenders.”
Charges: While there is no discontinuance charge, there is no fund management charge too since the insurer pays the fund value immediately after the expiry of the notice period and there is no management of funds.
The regulator has broadened the window of opportunity for you. Make use of this window to revive your policy.