The Insurance Regulatory and Development Authority of India (IRDAI) has changed guidelines on insurance products, especially in the ULIP segment, that will come to force from 1 December 2019.
Insurance companies will tweak their products to fit the changes and some policies may even see an increase in premium payments. Changes were also introduced on the design and information to be provided on benefit illustrations.
Here are seven such changes that will prove beneficial to customers:
1. Starting 1 December, the pension plans will allow a maximum commutation (lumpsum withdrawal) of 60 percent on maturity, which is higher than the current permissible limit of 33 percent (one-third portion). Note that the proceeds over and above the one-third withdrawn as lumpsum will be taxable.
2. As per new pension rules, the insurance companies to offer guarantees on maturity proceeds in the ULIP (Unit Linked Insurance Plan) segment. The guaranteed proceeds could bring down the potential for higher returns as the fund manager will have to have to invest in risk-averse options like debt instruments.
However, the customer can make the decision on whether or not they want the guarantee. Those who have started their pension planning early can choose to invest a larger portion of their investment within ULIP on equities to generate larger corpus over the long term.
3. A pensioner can also choose to opt for a different insurer for his/her annuity scheme, that is he/she can use up to 50 percent of the corpus on maturity (from the balance after lumpsum withdrawal) to purchase annuity from an insurer of their choice who may offer better returns. They do not need to stick to the insurer who they bought the initial pension plan from.
4. On endowment policies with tenures of over 10 years, those insured will be able to acquire surrender value if premiums were paid for two full years, instead of the earlier minimum requirement of three years. Surrender value is the amount that will be payable to you if you decide to discontinue from the insurance policy before maturity.
5. Partial withdrawals from pension funds will be allowed to the extent of 25 percent after completion of 5 years for specified needs, including higher education and critical illness.
6. In case of a financial crunch, the customer can reduce his/ her premium burden to the extent of 50 percent and keep the policy in force. It is being introduced as a way to lighten the burden on policyholders who may have been mis-sold a policy or maybe facing financial difficulties.
Earlier IRDAI extended the revival period from 2 years to 5 years for those who wish to renew their policies after a lapse due failure of premium payment.
7. Seven times the annual premium will be offered as minimum cover in ULIPs as against the existing 10 times cover for those under the age of 45.
Life cover in ULIPs come with mortality charges, which means that by lowering the cover, a larger portion of the premium paid, by those who are far from retirement, will be used for investment purposes, thus boosting returns.