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Business News/ Money / Personal-finance/  Irda extends new norms for life insurance plans by 3 months
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Irda extends new norms for life insurance plans by 3 months

It has been extended as most insurers filed products compliant in the last week of September

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The Insurance Regulatory and Development Authority (Irda) has agreed to extend the deadline of new product regulations for the life insurance industry to 1 January from 1 October.

Irda’s new products guidelines—namely linked insurance products regulations and non-linked insurance products regulations—aim to make insurance policies friendlier for customers. Irda had extended the deadline because most insurers had filed products compliant with new regulations only in the last week of September.

“We have decided to give an extension of three months. We realize that these are productive months for insurers. All 24 insurers have filed their products but most of these products, particularly that of the Life Insurance Corp. of India’s (LIC), came to us in the last week of September. So we have decided to give an extension," said Sudhin Roy Chowdhury, member life, Irda. So far, the regulator has approved six products from LIC.

However, insurers will have to discontinue highest net asset value guaranteed products and index-linked insurance plans from 1 October. There is no extension of deadline on these products. “As insurers begin to re-file their products and get approval, they will have to start pulling out the existing plans," said Chowdhury. Although the wait has become longer, the new regulations could make insurance plans more favourable to customers. You need to understand the benefits the new product guideline will bring.

Product classification

The new guidelines have drawn three broad categories: traditional insurance plans, variable insurance plans (VIPs) and unit-linked insurance plans (Ulips).

Traditional plans: These are opaque products and can be divided into pure insurance and insurance-cum-investment products. The current regulations haven’t tinkered with their design.

Variable plans: According to the guidelines, VIPs will guarantee a certain minimum rate of return, also called the floor rate, at the beginning. Additional benefits could either be pegged to an index, declared upfront, or come in the form of periodic bonuses which will be guaranteed once declared. Like Ulips, VIPs will have to conform to cost caps. That means the reduction in yield will not be more than 4 percentage points in the fifth year, coming down to a difference of 2.25% 15th year onwards.

Ulips: New rules don’t change Ulips much as most of the changes took place in 2010. Ulips will have to conform to cost caps by observing the maximum reduction in yield. If the limit is breached, the insurer will have to plough back the extra cost.

Minimum cover

Irda has mandated that the minimum sum assured or death benefit on a life insurance shall not be less than 10 times the annual premium for individuals below 45 years of age. But for policies with tenors of less than 10 years, the sum assured limit has been reduced to five times the annual premium. That said, at any point the death benefit will have to be at least 105% of all premiums paid till date.

Higher surrender value

In case of Ulips and VIPs, the maximum surrender charge will be 6,000 in the first year tapering off to 2,000 in the fourth year and becoming nil fifth year onwards. For traditional plans, the surrender charge is still on the higher side. As per the new rules, you will become eligible for a surrender value after paying premiums for two years in case the premium-paying term is less than 10 years. You become eligible to a surrender value after three years if the premium-paying term is more than 10 years. The minimum guaranteed surrender value will be 30% of all premiums paid going up to 90% of the premiums paid in the last two policy years. “Industry will focus on customer retention because in order to give out bonuses to persistent policyholders insurers will have to make sure they don’t have customers surrendering midway," says V. Viswanand, director and head-product solutions management, Max Life Insurance Co. Ltd.

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Published: 30 Sep 2013, 06:03 PM IST
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