IRDAI has imposed a fine of Rs.5 lakh on Reliance Nippon Life Insurance for violating norms related to free look cancellation of traditional policies.
The insurance regulatory has found that Reliance Nippon Life Insurance had deducted premium amount from the overall premium instead of risk premium. Typically, insurance premium has two components- risk premium and savings components.
Free-look period allows policyholders to terminate their insurance contract without paying any penalty. However, insurance companies can deduct expenses incurred on medical examination and stamp duty during the free look in period. Also, in case a policy commences, the insurer can deduct a certain amount which is proportionate to the risk premium for the period on cover.
In addition, IRDAI found that the impact was more prominent in single premium policies and limited premium payment term policies where policyholders have to pay large premium amounts.
Many policyholders incurred loss due to these deductions, said IRDAI.