The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday (12th June 2023) mandated that the facility of loan against the policy is now obligatory for all life insurance savings products. The move aims to enable all policyholders to meet their liquidity requirements during the crucial hours of need. In addition to this, the insurance regulatory body has also announced that the ‘free look period’, which allows policyholders to review the terms and conditions, is now extended from 15 days to 30 days. Moreover, the provision for partial withdrawal under pension products has also been approved enabling policyholders to meet specific financial requirements for significant life events.
The new master circular by Irdai rolls out a new set of guidelines that intend to make life insurance easy to understand for customers. The broad idea is to bring in more transparency for a policyholder who can make a well-informed decision.
Pricing of life insurance products
The regulator has said that while pricing the insurance products insurers must ensure:
- Fair Premium rates/charges
- Discounts offered and loadings are defined objectively and presented with clarity
- Similar risks are not discriminated in terms of premium charged
- Pricing shall be equitable among all policies even when sold through different mediums/channels
Free Look Period
To ensure an insurer’s right to review and the option to cancel the policy Irdai has extended the free look period to 30 days (from the date of receipt of the policy document) against 15 days as was provisioned before. If the policyholders are not satisfied with any of the terms and conditions, they have the option to cancel their policy.
Key features of the product in simple terms
The mandate requires insurance providers to formulate key features of the product in simplest terms which include but are not limited to the availability of policy loans, and a lock-in period of five years for Linked Insurance products during which period the policy proceeds is not allowed to be payable to policyholders except in case of death or other covered contingencies.
Policyholders must know:
- Benefits payable on survival including maturity benefit
- Benefits payable on death
- Benefits payable on surrender of the policy.
- Other benefits payable, if any.
Irdai says that options available under the policy should be explained in simple terms. These include the facility to:
- Withdraw the amount partially out of policy benefits during the term of the policy.
- Receive the maturity or death proceeds in instalments.
- Pay an additional premium over and above the contractual premium payable under the policy.
- Move from one fund to another fund, either wholly or partly (in the case of Linked Insurance products)
Nomination
Irdai says that the policyholder must nominate the person to whom the money secured by the policy shall be payable in the event of the death of the policyholder. The nominee can be changed at any time during the term of the policy. Moreover, policyholders will be provided with a simple and seamless procedure for registering and changing the nomination in the policy.
Withdrawal under pension products
The insurance regulator has now extended the facility of partial withdrawal under pension products. The move aims to enable the policyholders to meet their specific financial requirements for important life events such as higher education, children’s marriage, purchase/ construction of residential houses/flats, medical expenses, and treatment of critical illness.
Benefit Illustration for Life insurance products
As per Irdai, insurance providers must give customised benefit illustrations to proposers/prospective policyholders at the point of sale for a product along with the policy prospectus. This has to be signed by both the prospective policyholder as well as the insurance agent or any other distribution channel/person involved in the sales process. This would also form a part of the policy document.
Wider choice to the policyholders
According to the new mandate, life insurance providers need to make available products/riders to provide a wider choice to the policyholders/prospects. This must cater to the needs of the customers suitably across all - ages, regions, occupational categories, persons with disabilities, and any other categories. The choices must be presented to the policyholders/prospects as per their affordability.
Note: This does not imply that the insurance provider shall have one product to cater to all of the above. They must allow flexibility to customers to choose products/riders as per their requirements.
End-to-end technology solutions
Irdai has once again asked insurance companies to put in place end-to-end technology solutions to ensure an effective, efficient, and seamless onboarding of policyholders, renewal of policy, policy servicing, grievance redressal, and claim settlement process.
The regulatory body says that insurance companies must institutionalise mechanisms that will improve persistency, curb mis-spelling of policies, and prevent financial loss to the policyholders while also streamlining long-term benefits to them.
