Articles 1424 views March 16, 2020

he IRDAI (Insurance Regulatory Development Authority of India) has directed the insurance providers to implement certain changes in ULIPs and other traditional life insurance policies starting from 1st April 2020 onwards. These changes instructed by IRDAI include an increase in the revival time of ULIPs, the sum assured of ULIPs being reduced, standardized partial withdrawal limit, increase in the withdrawal limit of pension plans up to 60%, revision in the survival value norms, etc.

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Let us check out the details of these changes and their impact on policyholders.

Impact of changes in insurance policy guidelines on policyholders

Increase in the revival period of the policy

According to the guidelines issued by IRDAI, insurance providers have to increase the period allowed for the revival of ULIPs to 3 years from the date of the first unpaid premium. Currently, the revival period is 2 years and with these new guidelines, the revival period for non-linked insurance products should be 5 years now.

In case, a policyholder has not been able to pay his premium and has got his insurance policy discontinued due to financial crisis; he will now be able to get another one additional year for activating his insurance policy.

The decrease in the sum assured of ULIPs

The new guidelines of IRDAI direct the insurance providers to reduce the sum assured of ULIPs from 10 times of the annual premium paid to 7 times of the annual premium paid. This change will be effective for those policyholders who are below the age of 45 years.

From the perspective of policyholders, by reducing the sum assured the returns would be better but, by the reduction in sum assured availing of tax benefits by policyholders would not be feasible.

Pension plans for policyholder’s benefit

The insurance providers who were offering guaranteed maturity proceeds on pension plans will make it optional as per the guidelines of the IRDAI.

With this change, the policyholders will have the option of being able to earn a higher return on the investment made. They can select the ‘No guarantee option’ and thus, ask the insurance provider to increase the exposure of equity in the policy. Moreover, the policyholders can now be able to extend the accumulation period of the same policy up to the age of 60 years.

Increase in the withdrawal limit of pension plans

Policyholders can now withdraw a larger lump sum of 60% at the vesting age, death or surrender of the plan.

This withdrawal limit was 33% earlier and with this increased limit, policyholders can use the corpus for the accomplishment of certain goals or avail medical facilities related to certain illnesses. Moreover, policyholders can also purchase an annuity at the time of policy maturity from a different insurance provider.

Revision in surrender value norms

With the revision in the norms of surrender value, a policyholder can surrender the insurance policy even after 2 years of its commencement and the Survival benefit obtained would be 30 per cent of the premium paid less survival benefit already paid. Similarly, the surrender of the policy in 3 years would give the benefit of 35% and it would become 50% in case of surrender in 4th to 7th year. Furthermore, it would become 90% if the policy is surrendered just 2 years before its maturity.

Partial withdrawal limit being standardized

Now, policyholders can be able to do partial withdrawals for defined life events only thrice within the policy term and it would be a maximum of up to 25% of the fund value. No partial withdrawals are permissible for Group Unit Linked Insurance Plans.

This limit on partial withdrawal would make building a corpus easier and convenient for policyholders now.

Hence, these new guidelines of IRDAI are sure to be advantageous for the policyholders in terms of higher returns, more savings and better privileges from pension plans.

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