The Insurance Regulatory Authority of India (IRDAI) has brought in several changes to its guidelines on life insurance policies and these will be effective from February 1, 2020. If you have been planning to take a new policy, it important to know how these new guidelines will impact your polices.
As per a Economic Times report, the changes now made include ULIPs (or Units linked life insurance policies) and cover areas like policy revival, withdrawal limits in pension plans and surrender value norms. The intention of the insurance regulator is to make it more beneficial to you, the customer or in insurance language, the beneficiary.
Buying ULIPs brought down to 7 times instead of 10 times the sum assured: The new guideline says you can only buy ULIPs to the tune of 7 times the premium paid. More importantly, the terms and conditions have been made uniform for all age groups in place of the 45 years and below being treated differently earlier.
This is seen from two perspectives. One is the loss to those policy holders who gain on the income tax benefits. The other way to look at it is lesser amounts get blocked through the investment in ULIPs.
Time Period for Policy Revival
People take policies under certain circumstances and then stop paying the premium. There are provisions for reviving such policies if the policy holder starts paying the premium. In the case of the units linked policies this time period was two years from the date the last premium was paid. IRDA has now enhanced this to three years. For normal insurance policies, the five-year period stays.
Pension Plans
IRDA has made it optional for insurers to offer guarantees on maturity proceeds on pension plans. It was mandatory earlier. The decision has been left to the insurers to decide if they want to promise assured returns. This change will matter to certain policy holders who are willing to take the risk and insist on higher returns while others may choose to be satisfied with their capital being protected.
Withdrawal in Pension Plans
In the case of pension plans, the present rules permit the policy holders to withdraw up to 33% of the paid premium before maturity. This limit has been enhanced to 60% with effect from February 1, but the tax benefit will stay at the 33% level only. This move also leaves the policyholders with better options in managing their finances.
Changes in the Surrender Value Norms
The new guidelines announced by IRDA allows the policy holders to surrender their policies even after just two years of starting the policy. They will not have to wait for the three-year period to be completed before the insurer makes the payment. The norms of paying 30%, 90% of the premiums paid depending on the number of years the premiums have been paid and the surrender of the policy is being sought.