insurance policies

New guidelines for Insurance policies

You will soon be offered new insurance policies with added benefits. IRDA has mandated some key changes in the insurance policies for the benefit of policyholders. The new guidelines will offer better life insurance cover, better surrender values and improved disclosures. All the 24 insurance companies (including LIC) have to withdraw all existing products and come out with new ones.

Old policies, where the contract had already been made, will continue to get renewed. However, at the time of renewal of group policy, the insurer will have to give the policyholder an option to switch to the modified version. In case the policyholder does not switch to the new modified policy, the insurance company will have to take a written consent that the policyholder will continue with the old policy.

Though the deadline to roll out new policies was 1st October, IRDA has extended the date to 1st January’ 2014, except for the insurance products which offer highest NAV, or are indexed linked. You may be curious to know the new guidelines for the insurance policies. As per new guidelines issued by IRDA, all new insurance products will be divided into three broad categories —

• Traditional
• Variable
• Unit-linked

Traditional Products: The earlier versions of traditional insurance products, viz. participating and non-participating would continue. Henceforth, all traditional products will have a higher death cover. Regular paying premium policies will have a cover of 10 times the annualised premium paid for people with an age of less than 45 years and 7 times for others.

Bonus for participating policies will be linked to the performance of the fund and is not declared or guaranteed in advance. However, in case of non-participating policies, the return in the policy is to be disclosed in the beginning.

Unit-linked Products : Due to various charges in the insurance policy, the investment growth gets reduced. Now the insurers have to inform policyholders about such reduction in the yield of their products on a monthly basis. Further an annual certificate has to be issued, mentioning the premiums paid and the charges, including the tax, deducted from the fund value.

Variable Products : All variable insurance plans will guarantee a minimum rate of return at the beginning of the policy. Variable insurance products will be treated at par with Unit-linked Products, including charge structure and the commission package as applicable for Unit-linked Products. Agents of such policies will get commission of up to 10% only.

Commission Structure : As per new guidelines, commissions will be linked to the premium paying period for all products and will be less for policies with shorter tenure. Single premium-non pension products will earn commission of up to 2% of the premium paid. In case of regular premium paying insurance policies, a policy with a premium paying term of up to 5 years, will earn a commission of up to 15% in first year and 7.5% in second and third year. Subsequent years will earn up to 5% of commission in such policies. For premium paying term of more than 12 years, commission can be up to 35% (for companies older than 10 years) and 40% (for companies not older than 10 years).

Lock-in period / Surrender : For Unit-linked Products, the lock-in period will continue to be five consecutive years from the date of commencement of the policy. In case of Unit-linked and Variable insurance products, the maximum surrender charge will be Rs.6,000 in the first year, tapering off to Rs.2,000 in the fourth year and becoming nil fifth year onwards Further, except in the case of death or any other contingency covered under the policy during this five year period, the proceeds of discontinued policies cannot be paid to the insured.

Based on the premium paying term, all individual non-linked life insurance and pension policies will have a minimum surrender value. The policy shall acquire a guaranteed surrender value, if all the premiums have been paid for at least three consecutive years for products with a premium paying term of 10 years or more. Similarly, for products with a premium term of less than 10 years, if all premiums have been paid for at least two consecutive years, the policy shall acquire a guaranteed surrender value of any subsisting bonus.

For pension products, the insurer has to offer insurance cover throughout the deferment period or offer riders. In all such pension products, the sum of all rider premiums attached to the pension product cannot exceed 15% of the premium paid. Such rider premiums will be separately accounted for and cannot be included in arriving at the assured benefit.

Revival of policies : To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee. However, the insurer can levy policy administration and premium allocation charges and any guarantee charge, if such a guarantee is reinstated.

For policies that have not completed two years of revival period at the end of the lock-in, the insurer will have to take written consent from the policyholder to revive the policy immediately or within the two-year period.

Health insurance : Now, all health insurance products, except for customised products, would be renewable for life-time. All new individual health insurance policies, except those with tenure of less than a year, will have a free-look period and this will be applicable at the inception of the policy. Also, cumulative bonus will not be allowed on benefit-based policies with the exception of personal accident cover. Insurers now have to settle claims within a period of 30 days from the receipt of all documents.

Health insurance providers will have to provide coverage to non-allopathic treatments also. But to avail of the cover, the policyholder will have to get the treatment done in a government hospital or in any institute recognised by the government or any accredited institute by the Quality Council of India or the National Accredition Board on Health. In case of claim, no-claim bonus can be reduced proportionately, but cannot be made zero.