New life insurance products call for new guidelines: IRDAI | Tomorrowmakers

The newly proposed guidelines will greatly benefit insurance buyers

New life insurance products call for new guidelines IRDAI

Life insurance products have seen a transformation in the last five years. Driven by customer needs, insurance companies have built products to cater to the new-age insuree. 

The Insurance Regulatory and Development Authority of India (IRDAI), to keep up with the changing market dynamics, has released new product guidelines for linked and non-linked life insurance policies. The good news is that these guidelines are set to significantly benefit insurance buyers.

Here’s everything you should know about the changes before you jump in and buy life insurance for yourself:

Linked policyholders can make partial withdrawals for specific reasons 

This can be a game-changing alteration to the current provisions. With this, an insured person can withdraw partial amounts when in urgent need of money. However, this will be allowed only in certain circumstances such as critical illness, disability due to accident, etc. It will ensure that a life insurance policy comes to the rescue when the insured is facing a health scare, and not just in case of an unfortunate fatal event. The benefit to withdraw money will hugely help how life insurance policies are perceived by insurance buyers.

Related: The impact of life insurance over the world

Policyholders can change tenure after buying insurance 

This is another important change that will benefit customers. Most people buy life insurance in their 20s or 30s. This means a commitment of 20-25 years is made very early in life. As they grow older and experience life, their needs and goals tend to change. A policy bought earlier may not be line with their life vision any more. The flexibility to change the tenure of their policy during the course of their life will help buyers to align their investment with their goals and utilise their resources as per their needs.

Pensioners can renew their policy from any insurance provider

A win for pension policyholders will allow them the flexibility to buy annuities from any insurance company. So far, one had to renew their policy from the same insurer. This locks in the customer who has to give business to the same insurance company irrespective of the rate of interest offered. The new guideline has put the ball in the customer’s court. They get to decide whom to buy from depending on the service and interest rate provider by different players. Increased competition will bring more value to the customer.

Related: Why do “I” need life insurance? 

Term for surrender value shortened to two years

As per the new proposed norms, surrender value for a non-linked policy will depend on the premium paying term. For policies with a term less than 10 years, the policyholder will acquire a guaranteed surrender value if premiums have been paid for two consecutive years. For policies with a term greater than 10 years, at least three premiums have to be paid for a guaranteed surrender value. On the other hand, more time has been allotted for policyholders to reinstate lapsed policies. In case of lapsed policies, customers will be able to revive them up to five years from the date of invalidation, offering more leeway in continuing with an insurance plan. This period is currently much shorter at two years.

Commutation benefit now at par with other pension products

With respect to pension products the pensioner can make a one-time withdrawal, also known commutation, for up to 60% of the market value, while the balance 40% goes in purchasing an annuity plan. Previously, commutation was permitted only up to 1/3rd of the corpus.

Long-term financial stability offered through an extended settlement period

The settlement period has been extended to 10 years from the current five years for linked products, where policyholders can receive death or maturity benefits over a staggered duration. This helps the policyholder manage their finances better over the long term.

Related: 5 things you must know before you buy life insurance 

Reduction in death benefit for young policyholders

On the flip side, the minimum benefit has been standardised across all age groups at seven times the annual income for regular premium products and 1.25 times for single premium policies. Previously, this ratio was the same for insured customers above the age of 45, but higher at 10 times for customers below the age of 45.

IRDAI has put forward these proposed guidelines to all stakeholders and asked them to share suggestions by 15th November 2018.

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