Life firms told to discontinue policies with a fixed rider

Life insurers will have to discontinue all products that, as an extension of a policy, has a compulsory rider attached to it.

In view of poor conformity to standards in life insurance products, the Insurance Regulatory Development Authority (Irda) has said that no life insurer can sell a policy that has a compulsory rider attached to it as an extension of the policy. The new norm will be applicable from April 1.

Irda has also stipulated that every insurer has to compulsorily illustrate a lower and a higher rate of returns on investment of funds made for the purpose of projections. The initial rates to be used in projections are 10 per cent and 6 per cent, which will be reviewed at least once a year by the Life Insurance Council, as required by Irda.

These illustrations will also have to be provided mandatorily to customers directly or through their licensed agents and intermediaries for all products.

The council, however, can also, if required by Irda, set a higher and lower projection of interest rates more than once a year. Illustrations based on higher and lower rates of return should show a projected fund value after all charges associated with the policy and investment of funds are deducted. No insurer carrying life insurance business will be allowed issue illustrations in any other way.

Although Irda has allowed usage of a lower illustrative rate they will not be able to use rates higher than those set by the Life Insurance Council.

Irda has also asked companies to avoid using ambiguous terms, such as, "vanishing premiums" provided usage of such expressions is considered unavoidable, the same shall be prominently defined and explained by the insurer, so as to avoid confusion and ambiguity. It has also made it mandatory for companies to make a clear statement where policy holder's right to participate in surplus is deferred.

Insurance entities will also have to ensure that sales illustrations clearly distinguish between guaranteed and non-guaranteed benefits and state the quantum of benefits in respect of non-guaranteed products may vary.

They are now required to review assumptions in its sales illustrations at least once a year, and where assumptions are no longer valid, revise the sales illustration. Further, "guaranteed" and "non-guaranteed" returns will also have to be clearly indicated.