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Regulator Insurance Regulatory and Development Authority of India (Irdai) on Wednesday mandated insurance companies to provide loans on policies across all life insurance savings products, enabling policyholders to meet liquidity requirements.
In its master circular for life insurance companies which will be effective from September 30, 2024, the insurance regulator said: “Facility of policy loan is now mandatory in all life insurance savings products enabling policyholders to meet liquidity requirements.”
“All non-linked savings products offering surrender value shall have the facility of policy loan based on the eligible surrender value. The insurer may also offer policy loan facility under annuity products with ‘Return of Purchase Price’ option based on eligible surrender value,” the circular said.
Surrender value is the amount a policyholder can withdraw from their life insurance policy at any time. The policyholders will be eligible to loan based on the eligible surrender value.
However, the regulator said that loans will not be allowed under the Unit Linked Insurance Products (Ulips).
On customer protection, Irdai said insurers are required to comply with the award of the Insurance Ombudsman within 30 days of receipt of the award. In case the insurer does not honour the ombudsman award, a penalty of Rs 5,000 per day shall be payable to the complainant.
The regulator has also allowed policyholders an option of partial withdrawal under pension products. It can be partially withdrawn after three years from the date of commencement of the policy during deferment period.
The policyholders can use this withdrawal to meet specific financial needs for important life events like higher education or marriage of children; purchase or construction of a residential house or flat; medical expenses, and treatment of critical illness.
The withdrawal, which will be permitted only three times during the tenure, should not exceed 25 per cent of the total premiums paid as on the date of the partial withdrawal, it said.
The circular is seen as an important step in the series of reforms taken up by the regulator with interests of the policyholders at the core. “A conducive environment is now facilitated to spur innovation, enhance customer experience and satisfaction,” Irdai said in a press release.
The insurance companies are also permitted to introduce products, which have a range of premium payment term to facilitate financial planning among consumers.
According to the circular, for individual savings products, the minimum policy term shall be at least five years, and 1 year for group policies.
“Insurance companies may design products which offer a range of policy terms, subject to a minimum policy term of one month, with respect to individual pure risk product, group term, group credit Life and micro-insurance products.”
Insurers may design products, which offer a range of premium payment terms. They have been asked to offer the policyholders a choice to alter the premium payment term or policy term, provided that such alteration is in accordance to board approved underwriting policy on the insurer. Also, the premium rates that will be charged should be approved under the product approval process.
Irdai has allowed health riders to cover health-related contingencies or emergencies without recourse to surrendering the policies are possible. In case of surrenders, Irdai expects reasonableness and value for money to be ensured for both surrendering policyholders and continuing policyholders.
The timeline for reviewing products has also been extended by Irdai with the free look period being at 30 days from the existing 15 days. A free look period is the time-period during which the policyholder can cancel the policy without paying for surrender charges.
In the case of product pricing the regulator has asked insurance companies to ensure that premium rates or charges are fair. Similarly, discounts offered and loadings are unambiguous and objectively defined.
The companies must also ensure that similar risks are not discriminated against in terms of premium charged and pricing is equitable between policies sold through different channels.
The insurers also need to set up mechanisms to improve persistency, curb mis-selling, avoid financial loss to the policyholders, and enhance long-term benefits to them.
A customer information sheet has also been introduced that provides policy-related information in simple terms.
“Underlying principles of simplification and transparency in insurance enables a well-informed decision by a prospect/policyholder. It minimises policyholder grievances; enhances customer satisfaction and confidence. It goes a long way to improve insurance penetration while also providing an inclusive, equitable, and diversified insurance for all,” it added.
