Traditional products may become more attractive
Extending revival period and allowing them to acquire surrender value after 2 yrs will be beneficial
The recent draft product guidelines of the Insurance Regulatory and Development Authority of India (IRDAI) to review and standardise the 2013 regulations on linked and non-linked insurance products are likely to make life much easier for policyholders. Significant changes in customers’ needs have necessitated the move. The IRDAI had formed a Committee on Review of Product Regulations–Life to draft these guidelines.
The authority has proposed extending the revival period of policies from the current two years to five years for non-linked products. Experts say extending the revival period to five years will bring relief to customers, giving them a chance to revive long-lapsed products. Says Subhendu Bal, appointed actuary, SBI Life Insurance: “In the industry, most people with regular premium policies miss paying one or two premiums for various reasons. After missing for consecutive two years, they do not get the chance to revive it. With the new regulations they will have enough time to revive the policy.” This change is also expected to enhance the popularity of non-linked products.
Traditional plans will acquire guaranteed surrender value after two years instead of the current three-year period. Adds Bal: “IRDAI is taking this step owing to the huge lapsation rate of policies in the initial years. The proposed guaranteed surrender value payable even after paying two premiums for all premium-paying terms is beneficial to the customer.” Irrespective of policy term, policyholders will receive 35 per cent of premium as the guaranteed surrender value. This will enhance the attractiveness of traditional plans.
The minimum death benefit has been made seven times for regular premium products across all ages. Earlier, the minimum death benefit was 10 times the annual premium for those less than 45 years and seven times the annual premium for those above 45 years. Says Naval Goel, chief executive officer, and founder, PolicyX: "There will now be consistency in death benefits for people of all ages." In the case of single-premium products, the minimum death benefit remains unchanged at 1.25 times, but the age-wise differentiation has been removed.
The draft guidelines also propose to allow partial withdrawal from market-linked pension products. It will make these products more flexible and offer policyholders greater liquidity. It has also been recommended that policyholders be allowed to commute up to 60 per cent of the sum assured in pension products. Earlier they could commute only up to 33 per cent of the sum assured. However, the tax benefit remains the same. Only onethird the sum assured will be treated as nontaxable income while the rest of the withdrawal will be taxed.
ULIP holders will be allowed to switch their asset allocation during the settlement period. This refers to the period after the maturity of the policy (if you have opted for equal annual payouts). Policyholders will be able to change their asset allocation even during this period. According to experts, this move will make it easier for investors to manage funds in a volatile market situation. The draft regulations further say that insurers can now design individual term and group term insurance products that offer a wide range of policy terms and conditions.