New Guidelines Issued on Life Insurance Products: IRDA

With an aim to standardize insurance sector, Insurance Regulatory Development Authority (IRDA) has issued new guidelines for traditional life insurance products. The path breaking regulatory changes on these insurance products will come into effect this October.

A quick look on the regulatory changes:

  • Minimum benefit cover should be at 10 times the sum assured for those under the age of 45 and 7 times for above 45.
  • Further selling of highest NAV (net asset value) guaranteed products should be banned.
  • To revive a discontinued policy, the insurer can now collect only the unpaid premium and cannot charge any interest or a fee. However, the insurer can levy policy administration charges, premium allocation charges and any guarantee charge, if such charge is reinstated.
  • For policies, which have not completed 2 years of revival period, the insurer should take written consent from the policyholder to revive the policy immediately or within the 2-year revival period.
  • All life insurance companies should refile their existing products to the IRDA for approval before September 30. But those existing products that are not modified now, shall not be offered to policyholders after September 30.
  • In case of non-linked life insurance products, the minimum death benefit during the entire term of the policy cannot be less than the sum-assured and additional benefits.
  • For Unit-Linked Insurance Policies (ULIPs), mortality charge will be levied every month and this charge will be guaranteed for the entire term of the policy. There will be no other explicit charges levied on policy account apart from the mortality charge.
  • The insurer should send statement of policy account to the policyholder at the end of every year without fail.
  • The insurer cannot give loans to policyholders under unit-linked insurance products.
  • The insurer may offer flexibility in alteration of premium payment term, but it should not be less than 5 annual premiums.
  • Splitting of policies will not result in increase in fees or charges for the policyholder, either directly or indirectly.
  • An insurance company cannot collect advance premiums for both linked and non-linked insurance products.
  • The insurance premium shall be accepted within 30 days of the payment due date.
  • The insurer may accept 3 months’ premiums in advance only on the date of commencement of the insurance policy – in case of monthly premium payment mode.
  • For non-linked products, policy holders will have to pay premium for a minimum term of 5 years and Guaranteed Surrender Value (GSV) will be paid to the policyholder provided he has to pay atleast 2 premiums for any policy that is below or equal to 10 years and 3 premiums for over 10 year policy.
  • The guaranteed surrender value for all single premium products will be applicable at the end of the first year itself.
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