As huge corpus to the tune of Rs. 15,166.47 crores is lying unclaimed with the life insurance industry, the regulator Insurance Regulatory and Development Authority of India (Irdai) is itself taking steps to make the claim process easier for policyholders. In the latest move, the insurance authority via a circular dated August 3, 2018 has relaxed the rules in respect of withdrawal provisions on pension products.
How a pension plan offered by life insurance company works?
Life insurance companies offer pension products which are known as deferred pension plan. In it the policyholder during the initial period or through the policy term invests on a regular basis to aggregate a sum. Upon maturity of such a policy, policyholder is allowed to retain up to one-third or 33% of the accumulated corpus tax-free in his or her hands. And the rest needs to be invested to buy a single-premium deferred pension plan or an annuity. Using the annuity plan, insurer provides pension to the policyholder throughout his life-term.
Current rules of the IRDAI state that insurance companies need to provide a minimum annuity of Rs. 1000 per month to the policyholder. For this, a corpus of Rs. 2 lakh is required for a person aged 60 years. At present, insurance companies specify a minimum purchase price in respect of their annuity or pension products. Nonetheless, in case the accumulated corpus turns out to be lower, insurers are not able to annuitise and the money which after policy maturity needs to be invested in the annuity plan remains with the insurer.
But as per the new relaxed IRDAI rules, any accumulated corpus that is not enough to buy an annuity plan needs to be paid back to the policyholder as a lump sum amount. Also, note that this lump sum amount received from the pension product will be tax-free in the hands of the investor.