How the new insurance rules will benefit you
In an online chat with Get Ahead readers on October 31 Anil Rego of Right Horizons discussed the impact of new insurance rules on their policies.
Here is the unedited chat transcript:
bhanuprakash m: I have sbi ulip and reliance,Lic of india what will happen to my insurancce policies
Anil Rego: The new regulations will not impact your existing policies. Hence, there would be no impact.
Dinkar Dosanjh: what will happen to insurance policies i have been buying for all these years? Will i lose out on the benefits guaranteed in these schemes?
Anil Rego: As mentioned, past policies will not be impacted
Dawar Sheth: Will I save money when these new rules set in? How?
Anil Rego: Yes, you will save money on traditional policies since the new policies would now refer to a more recent mortality table. Further, the surrender charges for prematurely surrendering a product is reduced.
Amit Shellar: How come IRDA has not yet announced such rules? I have five different policies but I don't know yet about these changes. How will these changs benefit insurance buyers?
Anil Rego: IRDA has announced the new rules and has been covered in the media as well. Regulatory changes are normally not retrospective and hence applicable only to new policies.
Lalji Margasahayam: What do you mean by yields of ULIP and how will it help me knowing that every month?
Anil Rego: Currently yields of ULIPs are mentioned in the illustration for a 6 per cent and 10 per cent return scenario. The yield lets you know what you get in hand. (after all reductions including charges). IRDA now requires companies to mention this on a monthly basis in your statement.
Jignesh Kaisth: What will be these guaranteed minimum rate of return on my ulips?
Anil Rego: ULIPs are market linked and hence, there is no minimum rate of return that is guaranteed.
Eknath Gangulee: what is the current lock-in for ULIPs? Has it been increased in the new rules
Anil Rego: The current lock in period is 5 years and there is no change in this regard.
Kartik Dhadda: Which is the best insurance policy to buy once the new set of rules kick in?
Anil Rego: The plan you choose is based on your needs. There would only be a minor tweaking of policies to comply with the new guidelines. It is difficult to point out one plan that will suit all needs.
VENKATESH N: traditional policies commission for agents will come down will par with ulip
Anil Rego: Agent commission are likely to come down, especially for shorter tenures.
VENKATESH N: what are the changes in the traditional policies as per new IRDA guidleines
Anil Rego: A key change for traditional policies is that they are likely to have higher life cover. It will be 10 times for those below 45 and 7 times for the others. The surrender values are also significantly increased in the new guidelines.
Gambhir Harbir: What are the salient features of these new IRDA regulations? Could you list all the benefits accruing to policy buyers?
Anil Rego: Traditional policies have a higher life cover, but are likely to benefit from lower mortality rates. Further, surrender values have been improved. Insurance companies now need to inform the net yield after charges every month. There are improvements to Variable Insurance Plans and will be treated on par with ULIPs. These are the key highlights of how policy holders would be impacted.
haresh: How can I get rid of my ULIP policy? The agent mis-sold? What strategy should I now use?
Anil Rego: It would depend on the circumstances of the case. You could take this up with the insurance company first and then with IRDA if required. It must be noted that insurance companies normally take proper documentation including signatures in illustrations. Hence, one must have a sufficient case to press for miss selling.
pranab roy: How do difft Insurance Companies determine the surrender charges for premature withdrawal?Dr P.Roy
Anil Rego: As per the new guidelines, for traditional plans, it is 30 per cent of the total premiums paid. (earlier, the 1st yr premium was excluded while calculating the surrender value. The same further improves to 50 per cent between 4-7 years and further improves in the last 2 years of maturity is 90 per cent of premiums.
anil: I want you to tell me what is the best child insurance policy in terms of less fees and admin charges to be paid to the policy issuer?
Anil Rego: It is not appropriate for me to comment on any specific products pls.
What are these new insurance regulations?
By January 1, 2014, all insurance policies -- linked and non-linked -- will come with added benefits once insurance regulator IRDA's (Insurance Regulatory and Development Authority) new product guidelines kick in. The main points mentioned in the guidelines are as follows:
- Insurers will have to withdraw all existing products and come out with new ones. However, they will continue to renew old policies where the contract had already been made with the policyholders.
- All traditional products will have a higher death cover. For regular premium policies, the cover will be 10 times the annualised premium paid for those below 45 and seven times for others.
- For all ULIPs, companies will have to inform policyholders about the reduction in yield of their products on a monthly basis. Also, under the new norms, all variable insurance plans will guarantee a certain minimum rate of return at the beginning of the policy.
- All variable insurance products will be treated at par with ULIPs and these products will also follow the same commission package currently applicable for ULIPs.
- For ULIPs, the lock-in period will continue to be five consecutive years from the date of commencement of the policy.
- For pension products, companies will have to offer insurance cover throughout the deferment period (Period between the date of subscription of your insurance-cum-pension policy and the time when the first installment of pension is received) or offer riders.
- The sum of all rider premiums attached to the pension product cannot exceed 15 per cent of the premium paid for the pension policy. Such rider premiums will be separately accounted for and cannot be included in arriving at the assured benefit.
- To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee.
Photographs: Dominic Xavier/Rediff.com