Flexible and customer friendly norms for life insurance: Irdai proposes structural changes in linked, non-linked policies – Financial Express – 6th November 2018

After five years, the insurance regulator is in the process of reviewing the structure of linked and nonlinked
life insurance products. It has put out a draft paper which, among other things, proposes to make
the minimum death benefit seven times for regular premium products and 1.25 times for single premium
products. It proposes a definite sum if policyholders surrender the policy after two years. For pension
products, Insurance Regulatory and Development Authority of India (Irdai) has proposed up to 60% of
the pension maturity amount for commutation. The revival period in case of lapsed policies has been
proposed for five years instead of two years at present.
Non-linked products
For all non-linked individual life insurance products, the minimum sum assured on death during the
entire term of the policy shall not be less than seven times the annualised premium irrespective of age for
limited/regular products and 1.25 times the single premium for single premium products. For this, the
annualised premium will be the premium payable in a year chosen by the policyholder. At present, the
minimum death benefit is 10 times of the premium for less than 45 years. For single premium products, it
is 1.25 times the premium.
For participating products, in addition to the sum assured on death, the bonus/additional benefits as
specified in the policy and accrued till the date of death will become payable on death as part of the death
benefit, if not paid earlier. The insurer may pay the death benefit in lump sum or in instalments under the
settlement option.
Source
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For pension products, on surrender/ vesting the policyholder can get two options: Either utilise the
entire proceeds to purchase immediate annuity/deferred annuity from the same insurer at the then
prevailing annuity rate, or, commute up to 60% and utilise the balance amount to purchase immediate/
deferred annuity from the same insurer. The guaranteed surrender value for non-linked policies would
be applicable after two years of premium payment instead of three at present. The guaranteed surrender
value will be 35% of total premiums paid less any survival benefits already paid, if surrendered between
second year and third year. It will be 50% of the total premium paid if surrendered between fourth year
and seventh year.
After five years, the insurance regulator is in the process of reviewing the structure of linked and nonlinked
life insurance products. It has put out a draft paper which, among other things, proposes to make
the minimum death benefit seven times for regular premium products and 1.25 times for single premium
products. It proposes a definite sum if policyholders surrender the policy after two years. For pension
products, Insurance Regulatory and Development Authority of India (Irdai) has proposed up to 60% of
the pension maturity amount for commutation. The revival period in case of lapsed policies has been
proposed for five years instead of two years at present.
Non-linked products
For all non-linked individual life insurance products, the minimum sum assured on death during the
entire term of the policy shall not be less than seven times the annualised premium irrespective of age for
limited/regular products and 1.25 times the single premium for single premium products. For this, the
annualised premium will be the premium payable in a year chosen by the policyholder. At present, the
minimum death benefit is 10 times of the premium for less than 45 years. For single premium products, it
is 1.25 times the premium.
For participating products, in addition to the sum assured on death, the bonus/additional benefits as
specified in the policy and accrued till the date of death will become payable on death as part of the death
benefit, if not paid earlier. The insurer may pay the death benefit in lump sum or in instalments under the
settlement option.
For pension products, on surrender/ vesting the policyholder can get two options: Either utilise the
entire proceeds to purchase immediate annuity/deferred annuity from the same insurer at the then
prevailing annuity rate, or, commute up to 60% and utilise the balance amount to purchase immediate/
deferred annuity from the same insurer. The guaranteed surrender value for non-linked policies would
be applicable after two years of premium payment instead of three at present. The guaranteed surrender
value will be 35% of total premiums paid less any survival benefits already paid, if surrendered between
second year and third year. It will be 50% of the total premium paid if surrendered between fourth year
and seventh year.
Linked products
A unit-linked policy may only offer the following death benefits: Sum assured as agreed in the policy plus
the balance in the unit fund or higher of the sum assured as agreed in the policy or the balance in the unit
fund. All individual linked products will have either a guaranteed sum assured payable on death or a
guaranteed sum assured to meet the health cover. In case of discontinuance of policy due to non-payment
of premium, the fund value after deducting the applicable discontinuance charges will be credited to the
discontinued policy fund and the risk cover and rider cover will cease.
All individual pension products will have explicitly defined assured benefit that is payable on death and
may have a defined assured benefit payable on vesting. The defined assured benefit will be disclosed at
the time of sale. Life insurers will use uniform definitions for charges.
Expert’s take
Anuj Mathur, MD & CEO, Canara HSBC Oriental Bank of Commerce Life Insurance says the key theme
appears to be to simplify the regulations and provide more flexibility to customer. At the same time, the
regulations encourage innovation and nudge the industry towards offering better value to customers via
product design. “Changes in product categories such as pensions and group products will allow
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customers more choice and flexible options. They would also benefit from changes in surrender value
regulations such that for traditional products, particularly longer payment term policies, a surrender
value is available to customers earlier during the policy,” he says.
Similarly, Vivek Jalan, head, Insurance Consulting and Technology, Willis Towers Watson, India says, the
proposed changes, if implemented, will expectedly make life insurance product structures more flexible
as well as customer-friendly—such as increase in revival period, reduction in nil surrender value period
from three to two years, longer settlement period, allowance for fund switches; and other flexibilities in
term of product structures. “These developments should foster healthy competition in the industry and
provide opportunity for smaller players to find niche segments to differentiate themselves,” he says.
A unit-linked policy may only offer the following death benefits: Sum assured as agreed in the policy plus
the balance in the unit fund or higher of the sum assured as agreed in the policy or the balance in the unit
fund. All individual linked products will have either a guaranteed sum assured payable on death or a
guaranteed sum assured to meet the health cover. In case of discontinuance of policy due to non-payment
of premium, the fund value after deducting the applicable discontinuance charges will be credited to the
discontinued policy fund and the risk cover and rider cover will cease.
All individual pension products will have explicitly defined assured benefit that is payable on death and
may have a defined assured benefit payable on vesting. The defined assured benefit will be disclosed at
the time of sale. Life insurers will use uniform definitions for charges. Read More

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