The
Insurance Regulatory and Development Authority (IRDA) has enforced new
regulations on life and general insurance companies to make policies more
customer-friendly.
As a result, all
insurance companies have refiled their products in accordance with the new IRDA
regulations. These changes have been in effect since January 2014, with over
500 new policies that are in tandem with the new regulations being released by
insurance companies since then. Here’s what the changes mean to you:
Term Insurance Plan..
In general, there are
no changes as far as term insurance is concerned, except for in the plans being
offered by LIC of India.
LIC of India, which
had been using the old mortality table, has been asked to shift to the new
mortality table. The advantage of this is that with an increase in the average
life expectancy due to the advancement of medical sciences, insurance rates
have decreased in the new mortality table.
As a result, new term
plans from LIC of India are being offered at lesser rates.
Endowment Plans..
Here are the changes
that have been introduced to endowment plans:
Higher Coverage..
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| Mr. Sridharan, Fundsindiacom |
New endowment
policies come with higher coverage as the product is positioned as a life
cover. Due to this, its investment portion has reduced.
For regular premium
paying policies, the insurer will be covered for a minimum of 10 (Ten) times if
he falls under the age of 45, and 7 times if he is more than 45 years of age.
Higher Surrender
Value.
There will be the advantage of a higher
surrender value. The surrender value varies from a minimum of 30 % to the
maximum of 90 % depending on the surrender year.
The option of
surrendering the policy in the second year itself was not available earlier.
This option has now been made available to policyholders. In the earlier
policies, the surrender value was calculated without taking the first year
premium into consideration.
This is being changed
as per the new IRDA regulations, where the minimum surrender value is 30 % of
all the premium paid. Due to this, insurance companies are not able to take
long-term investment calls as they need to keep some investments in the
short-term to take care of surrender pressure. This will affect the policy’s
returns.
The objective of
taking up an endowment plan is to make disciplined investments towards an
objective and hence, it is not advisable to surrender the policy unless and
until an emergency situation arises, rendering you incapable of paying your
premium.
Returns Illustration Reduced..
The IRDA has asked insurance companies to use
the new illustrated return of 4 % and 8 %.
In earlier policies, insurance companies had shown the illustrated
return of 6 % and 10 %. The returns from new policies have therefore been made
realistic.
Service Tax..
All insurance
companies in India, excluding LIC of India, had a practice of collecting
service tax from policy holders & paying it on their behalf to the Service
Tax Department.
Prior to the
regulations, LIC of India would pay the service tax for customers & deduct
the same from the bonus generated by the policy. The new regulations have
enforced LIC of India to charge the same from the policy holder.
Agents’ Commission..
Commissions paid to insurance agents/brokers
will now be dependent on the payment of the premium term. Lower commissions
paid to the agent are definitely going to benefit customers.
For example, if the
policy’s premium paying term is 5 years, the agent’s commission should not go
beyond 15 %. The maximum commission is being fixed at 30 %, irrespective of the
duration of the term. This is being done to avoid product mis-selling.
To summarize, the new
insurance regulations for endowment plans are more customer-centric, and allow
the flexibility of choosing products, long-term or short-term, thereby
increasing the surrender value & protecting his capital for good real-time
returns.
However, it is always
advisable to choose an insurance product in line with your objectives and look
at it with a long-term investment view, as the returns from short term polices
are very low.
For Contact
Mr. Sridharan.S
Head - Financial Planning
Mob: +91 99401 16967
Tel : 044 - 4344 3142
Email : sridharan@fundsindia.com
+91 7667 166 166
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