7 New Changes in Life Insurance Policies and what it means for you

Life insurance policies offer valuable and essential financial support to families when they need it the most. Thus it is very important that the insured is clear about the terms and conditions of the policy that they buy and also the guidelines laid down by the insurance regulatory authority, IRDAI.  The Insurance Regulatory and Development Authority of India (IRDAI) proposed a few changes in October 2018; these changes have been introduced keeping in mind the welfare of policy holders. So let us look what these changes are.


1. Change in the life cover amount:

As per the proposed change, the minimum life cover would now be 7 times the annual premium paid by the policyholder for regular premium products and 1.25 times the premium amount for single premium products, across all ages. Before the proposed change, the total limit for life cover for insured till the age of 45 years was 10 times the annual income while for those above 45 years of age it is 7 times the annual income. The proposed change makes it same across all ages. There is not complete clarity about the tax benefits but most likely the premium payments will fall under the rebate offered under Section 80C.


2. Pension policyholders can buy annuities from any insurer:

Currently if a pension product is purchased the policy holder has to renew the policy from the same insurer. This does not allow the policy holder to choose the option which offers the best interest rate. Now as per the proposed changes this restriction will be removed which will give the policy holder more choice to choose the best option. The increased competition among insurance providers will work in favor of the customer.


3. Non-linked policies to acquire guaranteed surrender value after 2 Year:

As of now a life insurance policy acquires guaranteed surrender value after 3 consecutive years of holding the policy. This duration has now been reduced to two years which means the policy holder can now withdraw the amount if so desired after two years. This works in favor of the customer as he/she can take faster decisions which helps in better financial planning.


4. Proposed revival period for non-linked products is 5 years:

Currently the revival period for non linked products is 2 years. A policy lapses when the policy holder fails to pay the premium. As of now, in case the premium is not paid within 2 years all benefits covered under the policy cease to exit. Insured has two years to pay the overdue premium along with the applicable interest to reinstate his policy. Now with the proposed changes coming into force the policy holder will now have 5 years to repay the overdue premium and restore his policy. This obviously is favorable for the customers as they now have a longer time period to reinstate their policy.


5. Settlement option extended to 10 Year for unit linked products:

The current period for settlement is 5 years. The policy holder can receive death or maturity benefits as per terms and conditions of the policy extending up to 5 years. After the proposed change this period has now been extended to 10 years. The ten years period starts from the date of maturity or the original policy term whichever is lesser.  This change gives the policy holder more time to settle installments.


6. Customers are allowed to commutate up to 60 percent of the policy:

As per the current rules if you have a pension plan then you can withdraw one third of the amount and the remaining two third is mandatorily annuitized. Now with the proposed changes 60 percent of the policy sum assured can be commutated. This brings these plans at par with the National Plan Scheme. In case of market linked plans the insured can partially withdraw the corpus amount.


7. Partial withdrawal in case of linked pension plans:

Now the policyholder can withdraw from the policy corpus in case of certain events or requirements. So withdrawal can be made in case of a specific illness, a permanent disability that may occur due to an accident or otherwise or some other health issues. This again is something that works in the favor of policy holders as they have more financial flexibility.

It is important that you buy all financial products after a clear and complete understanding of it, especially so in case of insurance policies. Hopefully, the above discussion will help you in making an informed decision.




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