New life insurance policy rules: Here’s how they impact you

The Insurance Regulatory Development Authority of India (IRDAI) has simplified product regulations for the unit-linked products and non-linked products. Let’s take a deeper look at the changes suggested by the regulator that may have an impact on you.

The revival period has been increased to three years in case of unit-linked products and five years in case of non-linked products from two years. The revival period is the period offered by insurers to revive the policy after you missed paying the premiums after the policy lapses and also during the grace period. “The extension in the revival period will provide customers a wider window to revive their policy,” said Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance. With the increase in duration, you will get some flexibility in policy premium payment.

There have also been some changes in the minimum sum assured of linked and non-linked products. “For regular premium and limited premium paying policy is reduced to seven times the annualised premiums, irrespective your age when you purchase the policy. For single premium policy, the sum assured is 125 percent of single premium, again irrespective of your entry age,” said RM Vishakha, MD and CEO, Indiafirst Life Insurance.

This might be a bit problematic. “The death benefit has been reduced to seven times from 10 times and according to the tax regulations, only if the death benefit is 10 times the annual premiums it is eligible for tax benefits.,” said Mehta.

The regulator has also allowed partial withdrawal in Ulip pension plans. You can withdraw up to 25 percent of the fund value for education or marriage of your children, treatment of critical illness, purchase or construction of residential house.

“The sum assured payable on death shall be reduced to the extent of the partial withdrawals made during the two-year period preceding the death,” added Vishakha. Earlier no partial withdrawals were allowed in these plans.

“In respect of pension products, the option for commutation up to 60 percent is allowed. Up to 50 percent of the corpus (net of commutation) can be used to buy annuity from another insurer,” Mohit Garg, head- products, PNB Metlife.

At the time of retirement, if you need lump sum amount, pension products allow you to take a portion of the accumulated money as lump sum. In financial parlance, this is called commutation. It basically means an upfront payment of your pension money.

“This makes a distinct difference, as a customer can now receive the annuity proceeds as 60:20:20 i.e. commute 60 percent of the amount, and purchase annuity such that 20 percent is bought from the original insurer through whom the pension plan was purchased and the remaining 20 percent can be bought from any other insurance provider,” said Vishakha.

Changes in premium

Your premiums will be reduced up to 50 percent of the original annual premium after you make the payment of the full five years’ premium.

“This is not a price benefit but just an option for policy flexibility. If you pay your five-year premium upfront, then the rest of the five years you will be able to pay 50 percent of your premium with a reduced sum assured,” said Goel.

“In non-ulips risk products, the cover period as small as a month can be offered, thereby enabling more and more customers to fulfil their life goals through insurance and making it more affordable,” said Chugh. This regulation can come in handy for the insured.

“In non-linked products there are two kinds: savings product and prerisk product, which are essentially your term plans and this regulation is for your term plans. You will be able to buy a term plan for a month now and it might come handy if you are going for a longer holiday,” said Mehta. Term plans will have a wider scope than the app-based covers.

There’s also some benefit if you want to surrender your non-linked policy after two years. “If you discontinue your policy after two years, some amount of ‘guaranteed surrender value’ has to be given to you by the insurer and it has to be a pre-decided amount,” said Goel.

“The regulations were notified by Irdai on their website on July 15. Irdai is in the process of releasing the method and time of implementation of these regulations. Till that time the existing products will continue to be sold,” said Aalok Bhan, director and chief marketing officer, Max Life Insurance.