The Insurance Regulatory and Development Authority of India (IRDAI) has recently released new draft product guidelines for linked and non-linked life insurance policies, which are set to benefit insurance buyers substantially. In a notification, the regulator said that since 2013 there have been significant changes in the trends in product structures, driven by the customers’ needs, wants and preferences. Besides, the insurance industry was also representing to review the various provisions of the current product regulations so that insurance products could cope with the dynamism of the market. All such things forced IRDAI to review the existing product regulations.
Whatever be the case, it is also in the interest of the policyholders to know about the major changes proposed by the IRDAI. Here are the key changes that you must take note of:
a. Minimum death benefit has been made 7 times for regular premium products and 1.25 times for single premium products for all ages.
b. Non-linked policies to acquire guaranteed surrender value after 2 years.
c. Revival period extended to 5 years from the current 2 years in respect of non-linked products.
d. In respect of pension products, option for commutation up to 60% allowed.
e. Settlement option period extended till 10 years or original policy term, whichever is lower.
Currently, while the total limit for life cover for an individual up to 45 years of age is 10 times the annual income, the total limit for an individual above 45 years is 7 times of the annual income. However, it is proposed to make it 7 across all age groups.
“Although, there is no specific clarity on how much would be the tax benefit, the new proposal is likely to fall under Section 80C of the Income Tax Act. This is the only way it can be seen as a benefit to the consumers as it only makes sense to buy a cover if it helps in saving tax,” says Santosh Agarwal, Associate Director and Cluster Head-Life Insurance, Policybazaar.com.
This is being seen as a very effective move. “Currently if you purchase any specific pension product, you need to renew the policy with the same insurer regardless of the rate of interest being offered. It is kind of a lock-in contract. However, by making it open market, there will be more competition amongst the service providers, meaning improved rate of interest by the insurers,” says Agarwal.
The significant commutation of up to 60% is very progressive and is at par with the NPS which allows more flexibility and options.
When talking about partial withdrawal, it mostly revolves around circumstances when the policyholder is in immediate need of money. The circumstances may include any specific critical illness, permanent disability due to an accident, or any other major health issue wherein the insured needs to withdraw some amount for survival. Giving policyholders the flexibility of withdrawing money as and when they need is significantly helpful.
This is no doubt a very effective and efficient move. People these days, while investing money in a specific product, invest with certain goals and tenure in mind. However, “as they pass through different stages of life and experience different aspects, the goals tend to change. This is particularly because an individual never has control over everything in life. By providing flexibility to the consumers, they get to use their resources as and when required,” informs Agarwal.
It may be noted that the regulator has also requested all the stakeholders to offer their comments and suggestions on the proposed draft regulations latest by 15th November, 2018.
