The Insurance Regulatory and Development Authority of India (IRDAI) has instructed insurance to make some changes to the unit-linked insurance plans (ULIPs) and traditional life insurance policies. These new Life insurance policy guidelines from the IRDAI will be implemented from 1st February so it is important to be informed and updated about the changes.
The insurers are being instructed to make changes in the ULIPs and traditional insurance plans. According to the new guidelines, the revival period for ULIP plans has been increased from two to three years, the withdrawal limit for your insurance plan has been increased, there is a reduction in the sum assured for buying ULIPs to 7 times (earlier it was 10), the surrender value norms have also been revised to benefit policyholders and the partial withdrawal limit has been standardized, etc.
Read more about the new guidelines and how they will have an impact on you below.
Increased Time Period for Revival
As per the IRDAI new life insurance policy guidelines, insurers must increase the time period for the revival of the life insurance policies. As of now, the revival limit is two years for ULIPs. According to the guidelines, this time period will be extended to three years. For other (traditional) insurance products the time limit for the revival of policy will be five years.
The policyholders will get an extra year to revive any discontinued policy. To put it in simpler terms, earlier you only had two years to revive any discontinued policy. Thus, if you discontinued your life insurance policy due to any financial (or otherwise) challenge you would get an extra year to revive the policy. This is a very good step as it takes into consideration the insured person’s finances.
Sum Assured Reduced for Buying ULIPs
At present, people above 45 years of age are eligible to buy ULIPs with sum assured less than 10 times of sum assured. But with the implementation of new guidelines, people across all age groups can buy a ULIP plan with a sum assured as 7 times the sum assured.
This means that the guidelines for ULIPs are becoming standardizes and you, as policyholders, can get better results due to the lowered mortality charges. ULIPs will also be available with a risk cover up to 105% of total premiums, making it even more convenient for the policyholders.
Change in Pension Plans
Currently, insurers have to offer a guarantee on maturity proceeds. This means that they invest in debt instruments which ultimately leads to a lowered potential return on the investment. According to the new guidelines, this mandatory guarantee on maturity will become optional leaving the door open to policyholders to decide whether they want assured returns or not.
This new rule gives you the choice of opting out of the assured returns option. This opens up the possibility of higher returns by asking the insurer to increase the equity exposure of your policy. Basically, this option gives you the advantage of asking the insurer to invest a higher amount of money in and try to create a larger fund for retirement but it is important to note that there would be no guarantee of the capital or returns.
Increase in Withdrawal Limit for Pension Plans
Currently, you as policyholders are only allowed to withdraw a lump sum of 33 percent at vesting, surrender or death. February 1 onwards, this limit has been increased to 60 percent.
This essentially means that the additional liquidity gives the insured the option to withdraw a larger sum of money for whatever purposes, may it be a life milestone or a sickness. The larger liquidity also gives this option a better fight as compared to other pension plans. Earlier, these plans had only the 33 percent liquidity option.
Change in the Surrender Value Norms
Surrender Value refers to the value you get (as a policyholder) when you opt to make a premature exit from your plan. As of February 1, the surrender value norms are going to change. The new norms are more favorable for the policyholders. According to the new norms, your policy gains surrender value from the second year onwards and thus can be terminated.
Standardized Partial Withdrawal Limit
Currently, there is no cap on the amount a policyholder can partially withdraw. This limit varies according to policy and insurers. According to the new guidelines, the policyholder will be able to partially withdraw only thrice during the entire policy term.
The policyholder can only withdraw 25 percent of the money in the fund, at the time of withdrawal. This withdrawal is also linked to certain life events like higher education, marriage plans, critical illness or investments in a residential property. This cap leaves the door open for the policyholder to build a larger amount for their retirement.