Coronavirus pandemic | After banks, insurers can also offer three-month moratorium on term loans

Similar to the Reserve Bank of India's directive to banks, the insurance regulator has permitted insurance companies to offer a three-month repayment moratorium for term loan borrowers amidst the coronavirus (COVID-19) outbreak.

Insurance Regulatory and Development Authority of India (IRDAI) said that this is due to cashflow problems being faced by borrowers and in line with the RBI directions.

“In respect of term loans, insurers are permitted to grant a moratorium of three months towards payment of instalments falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans and also the residual tenor, will be shifted across the board by three months subsequent to the moratorium period,” said IRDAI.

It is to be noted that IRDAI has only permitted insurers to offer a repayment moratorium and it is up to individual insurance companies to decide whether they will make this available or not.

Also Read: Live updates from COVID-19 outbreak in India

Insurance companies including Life Insurance Corporation of India offer loans against policies. These loans are usually given for products that have acquired a surrender value. The amount of loan is decided as a percentage of the surrender value. Typically, a term insurance policy is not valid for loan sanction.

For example, if an insurance policy has acquired a surrender value of Rs 10 lakh which is basically the amount you get when you surrender the policy, the loan amount sanctioned could be Rs 8 lakh to 9 lakh.

Unlike banks, the repayment tenures of term loans by insurers is flexible and interest rates are also lower than those offered by core lending companies.

The RBI had on March 27 allowed banks and non-banking financial companies to offer a three-month moratorium or break in the EMIs for term loans like home loans and car loans.

Also Read: Should you opt for a moratorium?

When it comes to term loan by insurers, IRDAI has clarified that interest will continue to accrue on the outstanding portion of the term loans during such moratorium period.

IRDAI has said that the asset classification of term loans which are granted relief will be determined on the basis of revised due dates and revised repayment schedule. Further, the regulator has said that the rescheduling of payments, including interest, will not qualify as a default for the purpose of reporting of non-performing assets.