New Guidelines By IRDA For Insurance Agent
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The Insurance Regulatory and Development Authority (IRDA) has notified changes made to the guidelines on design of Life Insurance products in the gazette in February 2013. As per this notification, All existing group products will stand withdrawn from 1st July 2013 and all individual products from 1st October 2013. But After LIC's request IRDA grants extension upto 31st December 2013. Main aim of this notification is to make insurance policies more friendlier to public. Lets highlight some main points about this notification.
Traditional plans: According to the
guidelines, the product design of traditional plans would remain almost the
same. These plans would continue to come in two variants: Participating and
non-participating plans.
For participating polices the bonus is linked
to the performance of the fund and is not declared or guaranteed before. But,
the bonus once announced becomes a guarantee. It is usually paid in case of
death of the policyholder or maturity benefit. This bonus is also called
reversionary bonus.
In case of non-participating policies, the
return on the policy is disclosed in the beginning of the policy itself. In
both cases, a policyholder should calculate the net return to assess the total
costs.
New traditional products will have a higher
death cover. For regular premium policies, the cover will be 10 times the
annualised premium paid for those below 45 and seven times for others. The
minimum death benefit in case of traditional plan is at least the amount of sum
assured and the additional benefits (if any).
ULIPs: In case of ULIPs, life insurers will now have to inform
policyholders of the reduction in yield of their ULIPs on a monthly basis.
Reduction in yield—difference between gross and net yields (expressed in
%)—refers to the lowering of investment growth within a fund due to various
charges.
The net yield can be arrived at after
deducting all prescribed charges from the gross yield. Insurers will also issue
annual certificates mentioning the premiums paid, charges and taxes deducted
from the fund value, and the final payments made.
Variable insurance plans: The guidelines have mentioned that VIPs will guarantee a certain
minimum rate of return at the beginning of buying a policy—though they are
linked to an index. As VIPs will be treated at par with ULIPs, those products
will follow the same commission package for ULIPs. Under linked products, agents
are entitled to commission of up to only 10%. The charge structure and
discontinuance norms of VIPs will be in line with ULIPs.
This basic minimum rate of return is also
called floor rate. Additional benefits depend on the type of the policy. In the
case of a non-participating VIP, the additional benefit will be mentioned at
the time of buying the policy and may accumulate in the policy at specified
intervals.
Participating VIPs normally provide a regular
non-guaranteed bonus, which will be guaranteed once declared. Each policyholder
will have a policy account in which the premiums—net of charges—will get
credited. The minimum floor rate and additional rates will apply to this
balance. On maturity, the policyholder will get the value in the policy account.
Reduced commissions
The IRDA guidelines have reduced commissions
on short-term policies and have linked the quantity of commissions to the
premium paying period for all products.
Agents of single premium non-pension products
will receive remuneration of up to 2% of the premium paid. In case of regular
premium insurance policies, a policy with a premium paying term of five years
will pay up to 15% in the first year, 7.5% in the second and third year and 5%
subsequently. As the premium paying term increases to 12 years and above, the
commissions payable in the first year increases up to 35% in case the company
is at least 10 years old and 40% in case the company is less than 10 years old.
The regulator has framed the entire format on the basis of tenure of the
policies
In case of direct sale of products, such as
the online mode, there will be no commissions and this benefit will be passed
on to the policyholder.
Death benefit &
surrender value
The minimum death benefit in case of VIPs and
ULIPs is the policy account value or higher of the two. The minimum guaranteed
surrender value for traditional plans has been increased. For traditional
plans, with a premium paying term of 10 years or more, there will be a
guaranteed surrender value after three years. For premium paying terms of less
than 10 years, the guaranteed surrender value will accrue after the second
year. This guarantee surrender value will be 30% of total premiums paid.
Currently, the guaranteed surrender value is
usually 30% of all the premiums paid minus the first-year premium and is paid
only if premiums have been paid for three years. According to the new
guidelines, the surrender value becomes 50% between the fourth and the seventh
years, after which the insurer would have to file a surrender charge that needs
to be cleared by the regulator.
Health insurance
The IRDA in February 2013 has also issued
guidelines to standardize health insurance in India. Now, all health
insurance policies would be renewable for lifetime and will have an entry age
of at least 65 years. All policies except customized ones will be renewable for
life time. Insurers have to settle claims within 30 days after the receipt of
all the documents. The IRDA has introduced 15 days free-look period—A period
where a new insurance policyholder is able to terminate the contract without
penalties such as surrender charges.
In case of a claim, no-claim bonus can be reduced proportionately,
however it won’t be zero. In a health insurance policy, when a renewal is made
without any claims in the preceding period of the policy, the insurer offers a
bonus to the policyholder. This bonus is usually in the form of a discount in
the premium around 5% for every claim-free year. The bonus can go up to 50%,
provided no claim is made for 10 consecutive years. Any discount or loading in
the renewal premium will be mentioned to the policyholder at the time of policy
renewal.
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