Finance Article
Insurance becomes more transparent, consumer-friendly!
If the Insurance Regulatory Development Authority’s (IRDA) guidelines, that came into effect from January 1, 2014, are anything to go by, then policyholders will soon be seen enjoying more benefits than before. The changes notified by IRDA give a makeover to the existing products and aim at bringing more transparency between insurance companies and customers.
These steps taken by the insurance regulator are consumer-driven and assure benefits in the form of more bonuses and better surrender values.
Let’s see how these steps prove beneficial to the consumer:
Capital guarantee: Insurance Plans now fall broadly under three categories – Traditional Insurance Plans, Variable Insurance Plans (VIPs) and Unit Linked Insurance Plans (ULIPs).
When a customer chooses Variable plans, he is assured of capital guarantee and in some cases, bonuses too.
Long-term focus: Minimum premium paying term of non-linked variable insurance products has been set at five years. This is to make sure that insurance products are of longer duration and customers look at them from a long-term perspective.
More transparent: Variable plans now conform to cost ceilings. As of now, this is mandatory only for ULIPs. If you buy a variable plan, you will get a fair idea of the benefits you are entitled to through the period of the policy and at the time of maturity as well.
ULIPs will have to observe reduction in yield (difference between gross and net yields) and inform policyholders of the same on a yearly basis starting from the 5th policy year. This will ensure customers are constantly updated with the changes in the policy they have chosen.
IRDA has asked insurance companies to specify whether the product is protection-oriented, savings-focused or a combination of the two. This will help consumers know the exact nature of the product they are buying beforehand itself. This will eliminate uncertainty and instill more confidence in the consumer.
Higher surrender value: In case you are in urgent need of cash, you will now be able to fall back on the surrender value of your insurance policy. Surrender value is the amount the policyholder gets from the life insurance company if he decides to exit the policy before maturity.
The regulator has said that in case the premium-paying term of a policy is less than 10 years, the policyholder will become eligible for surrender value after paying premiums for 2 years. And in case the premium-paying term is over 10 years, surrender value can be obtained after paying premiums for 3 years.
The minimum guaranteed surrender value will be 30% of all premiums paid if surrendered between the 2nd and 3rd year of the policy and going up to 90% of the premiums paid if surrendered in the last two policy years. While ideally you should service a policy till it matures, it may not always happen. In the event you wish to opt out midway, you will receive adequate surrender value provided the necessary conditions have been fulfilled. The longer you stay invested, the higher will be your returns.
Death benefit: According to IRDA guidelines, minimum sum assured or death benefit on a life insurance will be 10 times the annual premium for individuals below 45 years of age. For those above the age of 45, the death benefit is 7 times the annual premium. At any point, the death benefit will have to be at least 105% of all premiums paid till date.
With a slew of such measures, it is evident that the insurance regulator wants to make the industry more customer-friendly and transparent. For those of you who don’t have a life insurance policy yet, it’s time you buy one, now.