LIFE INSURANCE
Proposed Change: Increase in minimum death benefit. The guidelines prescribe a minimum basic sum assured of ten times the annual premium if the age of the policyholder is less than 45 years and seven times the annual premium if it is 45 years and above.
For single-premium products, the life cover must be at least 125% of the premium paid if the person is less than 45 years of age at the time of buying the policy. For others, the figure is 110%.
To get tax rebate under sections 80C and 10 10(D), the minimum basic sum assured should be ten times the annual premium. What it means for you: It gives higher life coverage, plus an increase in premium, particularly for the old and those who fall in the high-risk category due to poor health. Also, those who have sufficient life cover may not benefit. “The guidelines prescribe a minimum death cover for the entire duration of the policy. Young customers will be assured a minimum protection throughout the policy term. However, older policyholders looking at wealth creation instead of protection will have to unnecessarily bear the cost of higher death cover,” says Pavan Dhamija, managing director and CEO, DLF Pramerica Life Insurance.
But given that insurance, not returns, is the primary goal of any life insurance policy, this will benefit the customer.
Irda has also proposed to increase the minimum tenure of a life insurance policy to five years.
“A longer commitment may not suit everybody,” says Arvind Laddha, CEO, Vantage Insurance Brokers and Risk Advisors.
Proposed Change: Link intermediary commission to policy tenure. An insurer can pay up to 14% annual premium to agents on policies with tenures of five-nine years, 28% on 10-14 year plans and 40% on policies with tenures of more than 15 years. Companies which have been in the business for more than 10 years will be allowed to pay up to 35% on policies with tenures of more than 15 years. What it means for you: This will benefit customers, insurers as well as agents. While distributors will push long-term products to earn higher commissions, policyholders will get protection for the long term
at a lower cost. “The longer the duration, the higher will be the commission. And because the commission will be distributed over the policy tenure, the impact on pricing will be minimal,” says Girish Kulkarni, MD & CEO, Star Union Dai-ichi Life Insurance.
This will increase the possibility that a policy will remain in the insurer’s books for a longer term.
Proposed Change: Modification in guarantee on surrender value. The draft guidelines say insurance products with premium-paying terms of 10 years or more will acquire guaranteed surrender value (GSV) after payment of third annual premium. Policies with a premium-paying term of less than 10 years will acquire GSV after payment of two yearly premiums, while single-premium products will acquire GSV at the end of the first policy year. What it means for you:At present, only policies where premiums have been paid for at least three years are eligible for GSV. The change will benefit those who are finding it difficult to pay premium. It will entitle them to surrender value after two years if the premium-paying term is less than 10 years. Irda has also proposed to end loan against Ulips. This will apply to new contracts.
Proposed Change: Introduction of index-linked plans. Indexlinked investment plans (Ilips) will be similar to equity-linked Ulips with a difference that the basket of stocks they will be allowed to invest in will be defined—an investment or economic index. “Index-linked products are expected to be linked to indices approved by the regulator. Based on the ongoing discussions, we understand that they will be linked to government securities,” says Kulkarni.
This means that unlike in case of Ulips, which get a lot of freedom to invest, there will not be any variation in the portfolio. Each policyholder will have a separate account.he account value will reflect the premium paid net of mortality charge and interest earned. The policyholder will earn throughout the policy term,” says Kulkarni. What it means for you: Since the fund will be linked to a benchmark or index, Ilips are likely to be more stable than equity-linked Ulips. They can be a good option for people who can’t take too much risk but still want to invest in equity markets. Also, the insurer will not be allowed to deduct any charge, except the mortality fee. This is unlike Ulips where there are several charges such as policy administration and fund allocation.
Re-allotment of orphan policies; no interest on premiums due. A recent guideline on serving of orphan policies allows life insurers to re-allot orphan policies where premium has not been paid for at least six months as the agent is inactive. Such policies can be transferred to agents who are still active. The rules for this have already been laid down.
At present, if a customer does not pay premium on time and wants to renew the policy later, the insurer charges an interest on the due amount. Irda plans to get rid of this if the insured applies for reviving the policy. What it means for you: This will benefit those who discontinue the policy due to lack of service. This means you will continue to receive after-sale service even if the agent who sold you the policy leaves the organisation. “This will enable companies to improve their persistency ratio and hence their bottom line,” says Dhamija. The ‘no interest on premium due’ proposal, a positive for customers, has been criticised by some. “It may encourage bad premium-paying behaviour and delays,” says Laddha.
Proposed Change: Increase in minimum death benefit. The guidelines prescribe a minimum basic sum assured of ten times the annual premium if the age of the policyholder is less than 45 years and seven times the annual premium if it is 45 years and above.
For single-premium products, the life cover must be at least 125% of the premium paid if the person is less than 45 years of age at the time of buying the policy. For others, the figure is 110%.
To get tax rebate under sections 80C and 10 10(D), the minimum basic sum assured should be ten times the annual premium. What it means for you: It gives higher life coverage, plus an increase in premium, particularly for the old and those who fall in the high-risk category due to poor health. Also, those who have sufficient life cover may not benefit. “The guidelines prescribe a minimum death cover for the entire duration of the policy. Young customers will be assured a minimum protection throughout the policy term. However, older policyholders looking at wealth creation instead of protection will have to unnecessarily bear the cost of higher death cover,” says Pavan Dhamija, managing director and CEO, DLF Pramerica Life Insurance.
But given that insurance, not returns, is the primary goal of any life insurance policy, this will benefit the customer.
Irda has also proposed to increase the minimum tenure of a life insurance policy to five years.
“A longer commitment may not suit everybody,” says Arvind Laddha, CEO, Vantage Insurance Brokers and Risk Advisors.
Proposed Change: Link intermediary commission to policy tenure. An insurer can pay up to 14% annual premium to agents on policies with tenures of five-nine years, 28% on 10-14 year plans and 40% on policies with tenures of more than 15 years. Companies which have been in the business for more than 10 years will be allowed to pay up to 35% on policies with tenures of more than 15 years. What it means for you: This will benefit customers, insurers as well as agents. While distributors will push long-term products to earn higher commissions, policyholders will get protection for the long term
at a lower cost. “The longer the duration, the higher will be the commission. And because the commission will be distributed over the policy tenure, the impact on pricing will be minimal,” says Girish Kulkarni, MD & CEO, Star Union Dai-ichi Life Insurance.
This will increase the possibility that a policy will remain in the insurer’s books for a longer term.
Proposed Change: Modification in guarantee on surrender value. The draft guidelines say insurance products with premium-paying terms of 10 years or more will acquire guaranteed surrender value (GSV) after payment of third annual premium. Policies with a premium-paying term of less than 10 years will acquire GSV after payment of two yearly premiums, while single-premium products will acquire GSV at the end of the first policy year. What it means for you:At present, only policies where premiums have been paid for at least three years are eligible for GSV. The change will benefit those who are finding it difficult to pay premium. It will entitle them to surrender value after two years if the premium-paying term is less than 10 years. Irda has also proposed to end loan against Ulips. This will apply to new contracts.
Proposed Change: Introduction of index-linked plans. Indexlinked investment plans (Ilips) will be similar to equity-linked Ulips with a difference that the basket of stocks they will be allowed to invest in will be defined—an investment or economic index. “Index-linked products are expected to be linked to indices approved by the regulator. Based on the ongoing discussions, we understand that they will be linked to government securities,” says Kulkarni.
This means that unlike in case of Ulips, which get a lot of freedom to invest, there will not be any variation in the portfolio. Each policyholder will have a separate account.he account value will reflect the premium paid net of mortality charge and interest earned. The policyholder will earn throughout the policy term,” says Kulkarni. What it means for you: Since the fund will be linked to a benchmark or index, Ilips are likely to be more stable than equity-linked Ulips. They can be a good option for people who can’t take too much risk but still want to invest in equity markets. Also, the insurer will not be allowed to deduct any charge, except the mortality fee. This is unlike Ulips where there are several charges such as policy administration and fund allocation.
Re-allotment of orphan policies; no interest on premiums due. A recent guideline on serving of orphan policies allows life insurers to re-allot orphan policies where premium has not been paid for at least six months as the agent is inactive. Such policies can be transferred to agents who are still active. The rules for this have already been laid down.
At present, if a customer does not pay premium on time and wants to renew the policy later, the insurer charges an interest on the due amount. Irda plans to get rid of this if the insured applies for reviving the policy. What it means for you: This will benefit those who discontinue the policy due to lack of service. This means you will continue to receive after-sale service even if the agent who sold you the policy leaves the organisation. “This will enable companies to improve their persistency ratio and hence their bottom line,” says Dhamija. The ‘no interest on premium due’ proposal, a positive for customers, has been criticised by some. “It may encourage bad premium-paying behaviour and delays,” says Laddha.
No comments:
Post a Comment