The Insurance Regulatory and Development Authority of India (IRDAI) has announced that all non-linked savings products in life insurance with surrender value should mandatorily offer loans based on the eligible surrender value.
“All non-linked savings products offering surrender value shall have the facility of policy loan based on the eligible surrender value. The insurer may also offer policy loan facility under Annuity products with ‘Return of Purchase Price’ option based on eligible surrender value,” said IRDAI in its latest Master Circular for Life Insurance.
The circular also highlighted that the “free look” period, which lets policyholders review their insurance terms and conditions, has been extended from 15 days to 30 days.
This circular results from a thorough review and consolidation of several existing provisions, replacing four previous circulars.
According to the circular, policyholders can now make partial withdrawals from their pension products. This provision allows them to address specific financial needs for significant life events such as higher education or marriage of children, purchasing or constructing a house, medical expenses, and treatment for critical illnesses.
Other key points of the master circular include:
- Health riders are now available to cover health-related emergencies without surrendering the policy.
- Policyholders can make partial withdrawals from their pension products to meet specific financial needs, such as higher education or marriage of children, purchasing or constructing a house, and medical expenses for critical illnesses.
- When policies are surrendered, both surrendering and continuing policyholders must receive reasonable value for their money.
- Insurers can now offer products with various premium payment terms, enhancing financial planning and flexibility.
- A range of new product features are possible, such as annuity products with payout options linked to publicly available benchmarks, fund-based products for non-employer-employee groups, and index-linked products.
Robust systems must be established for grievance redressal
Complainants should be informed about the escalation process to the Insurance Ombudsman if their issue is not resolved satisfactorily.
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If the insurer does not appeal against the Ombudsman’s award and fails to implement it within 30 days, they must pay the complainant a penalty of Rs 5000 per day.
Pricing of Life Insurance Products
When pricing life insurance products, insurers must ensure:
- Premium rates and charges are fair.
- Discounts offered and loadings are clear and objectively defined.
- Similar risks are charged equally.
- Pricing is consistent across different sales channels.
Measures to Strengthen Governance
- Mechanisms should be put in place to improve policy retention, prevent mis-selling, and protect policyholders from financial loss, while also enhancing their long-term benefits.
- Insurers must provide periodic training to intermediaries, distribution channels, and employees on products (existing and new), turnaround times (TATs) in policy servicing, and regulatory changes.
- The product clearance process is simplified, with a Board-constituted Product Management Committee empowered to handle governance aspects of product development, pricing, and design.
Nomination
- The policyholder must nominate a person to receive the policy benefits in the event of the policyholder’s death.
- The nominee can be changed at any time during the policy term.
- A simple and seamless procedure will be provided for policyholders to register or change their nominees.
Product Availability
Life insurers must offer a variety of products and riders to provide a wider choice to policyholders. These products should cater to:
- Customers’ specific needs.
- People of all ages.
- All regions, and occupational categories, including persons with disabilities.
- Policyholders of varying financial capacities.
Insurers should allow customers the flexibility to choose products or riders that best meet their needs. Key features of the products should be clearly provided, which include but are not limited to:
- Benefits payable on survival, including maturity benefits.
- Benefits payable on death.
- Benefits payable on surrender of the policy.
- Any other applicable benefits.
- Available options under the policy include:
Partial Withdrawal: Facility to partially withdraw amounts from policy benefits during the term.
Settlement Option: Facility to receive maturity or death proceeds in installments.
Top-up: Facility to pay additional premiums over the contractual amount.
Switches: In linked insurance products, the ability to move funds from one to another, either wholly or partially.
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Any other available options.
- Availability of policy loans.
- Lock-in period of 5 years for linked insurance products, during which policy proceeds are not payable except in cases of death or other covered contingencies.
Benefit Illustration for Life Insurance Products
- Life insurers must provide customized benefit illustrations to proposers or prospective policyholders at the point of sale, along with the prospectus.
- This benefit illustration must be signed by both the prospective policyholder and the insurance agent or authorized person from the intermediary or the insurer’s employee involved in the sales process. This document will form part of the policy document.
These guidelines aim to ensure that policyholders have access to clear, understandable information and flexible options, enhancing their ability to make informed decisions about their life insurance policies.
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