The discount should be equal to interest rates on savings bank account deposit of State Bank of India.
Soon, you can pay your insurance renewal premium in advance and get a discount.
The Insurance Regulatory and Development Authority of India (IRDAI) has issued draft guidelines to the life insurance companies proposing to allow these companies to offer discounts for renewal premium collected in advance.
“It has been decided to permit life insurers to offer discounts on renewal premiums paid in advance subject to conditions,” the draft norms said.
According to the draft circular, the discount should be equal to interest rates on savings bank account deposit of State Bank of India (SBI) as of April 1 of each financial year plus an addition of at least 100 bps.
This should be applicable for all advance premium during the entire financial year.
Currently, SBI offers 2.7% interest rate on savings account deposits.
“Facility of discounts shall be offered to all existing policyholders and prospective policy holders under current on-sale products who want to pay renewal premium in advance,” the draft norms stated.
The regulator has asked the insurers to inform in writing to IRDAI within 7 days of offering the facility.
Insurance companies said feedback has been sought from them and the regulator may issue the final norms shortly.
The regulator also said in case of occurrence of insured event during the period of receipt of advance renewal premium and the next premium due date, advance premium along with interest accrued as on date of settlement of claims should be refunded to the policyholder or beneficiary, as the case may be, along with other benefits as per terms and conditions.
Insurance companies said this was their long demand to offer discounts on advance premium paid.
They said it is yet another effort to ensure policyholders renew their policies in time and get an incentive to pay it in advance.
“The benefits of insurance can be passed on to customers when they renew their policies.
"There are various ways in which we try to ensure that the customer continues with the policy,” said Atri Chakraborty, chief operating officer at IndiaFirst Life Insurance Company, while explaining the rationale behind such a move.
“One of the things we thought was a good idea is that if there is a customer who wants to pay the renewal premium but forgets at the time of renewal or if the customer today receives a lump sum amount of money which he does not know where to invest, the advance premium can be paid by the customer. And he gets a discount,” Chakraborty told The Business Standard.
The facility will also be available to customers who opted for auto-debited facility, but the insurance company has to deactivate that facility once the premium is received in advance, insurers said.
The life insurance penetration in the country had gone up from 2.15 per cent in 2001 to 4.60 per cent in 2009.
Since then, it has shown a declining trend up to the year 2014.
Then from 2015 to 2017, it was increasing. After a small decline in 2018 to 2.74, it increased to 2.82 per cent in 2019.
India’s insurance penetration is, however, much lower than developed nations like the UK, US, Germany, etc but higher than Russia, Indonesia and Mexico, according to IRDAI data.