On October 26, 2018, IRDAI (Insurance Regulatory and Development Authority of India) has proposed significant changes in life insurance policies aiming to give a better understanding of the product, the regulator has set considerable benefits for its policyholders.
Have a look at these five important changes proposed by IRDAI and understand what it actually means for you:
=|1|= Minimum death benefit has been made 7 times for regular premium products and 1.25 times for single premium products for all ages.
Current status: The current status for less than 45 years of age is 10 times and for greater than 45 years, it is 7 times to be eligible under section 80C of income tax act to avail tax benefits.
Impact on policyholders: This is an insurance product and hence there is death benefit in-built in this. Santosh Agarwal, Associate Director and Cluster Head- Life Insurance, Policybazaar.com told Moneycontrol that making this lower will only benefit the policyholder because the amount of investment that you make, most of it would be going towards investment in the market and not towards the mortality charges. Whether it is 7 times or 10 times, it is not enough as the cost of life can never be measured. “It is best that most of the money that you invest should be invested in the market and help in corpus building rather than getting it deducted for the mortality charges,” she said.
=|2|= Non-linked policies to acquire guaranteed surrender value after 2 years.
Current status: Currently, to acquire guaranteed surrender value it takes 3 consecutive years to hold the policy.
Impact on policyholders: Now a customer can withdraw the amount after just after completing the policy term of two years. The policy surrender span has been reduced by a years’ time which can help customers to take further quick decisions about their investment.
=|3|= For pension plans, customers must be allowed to commutate up to 60 percent of the policy sum assured, while those with market-linked pension products can partially withdraw their corpus.
Current status: Currently, if take other pension products into consideration, you can withdraw 1/3 as a lumpsum amount and 2/3 of the amount is mandatorily annuitized.
Impact on policyholder: If it is going up to 60 percent, it is definitely a good change and this will make it at par with NPS (National Pension Scheme) which operates today at the same structure. Thus, it will make NPS and pension products comparable and at par with each other. “On the market-linked pension products allowing withdrawal at certain events during the policy tenure will also mean more flexibility to the policyholder which is also a good thing,” said Agarwal.
=|4|= Revival period extended to 5 years from the current 2 years in respect of non-linked products.
Current status: The restoration period of the policy, where all the benefits covered under the policy term gets discontinued due to the non-payment of premium within the stipulated time of two years.
Impact on policyholder: If the policy lapses and you want to again reinvest and continue the policy, earlier only 2 years was allowed for that. Agarwal gave an example, “if you have the policy for 10 years and you have paid for 4 years and after that, you have stopped paying the premium leading to the laps of the policy. Now till 2 years, you were allowed to reinstate the policy by paying the premiums that were due with some interest charge. That amount of period has been extended from 2 years to 5 years. If the policyholder has the ability to reinstate and his financial ability is sorted, they have far more time to be able to think through and revive the policy.”
=|5|= Settlement Option extended to 10 years from the current 5 years in respect of unit-linked products.
Current status: It is the facility available for policyholders. The period of settlement for making installment stands at 5 years, which is available to the policyholder to receive the death or maturity proceeds in installments in accordance with the terms and conditions specified in advance at the inception of the contract.
Impact on policyholder: The proposed period of the settlement will get extended up to a period of ten years from the date of maturity or the original policy term of the policy whichever is lower. The first instalment under settlement option shall be payable on the date of maturity. The policyholder will get more number of years to settle installments in case of any mishap, which in turn will help them in managing their finance over a longer period of time.
Take a quick look below over the proposed changes made under in linked and unit-linked plans: