Also, in order to ensure adequate cover, the regulator has ordered that death benefits should be linked to premiums paid.
In a recent communiqué, IRDA has told insurers to stop selling products that guarantee highest NAV. These products have been a major contributor to the total premium collected by a number of insurers.
“We have been told by the regulator to stop selling highest NAV products and we have also been discouraged from selling single/limited premium payment policies. IRDA has asked us to propose all polices with a regular payment option, equivalent to the term of the policy,” says a senior official from ICICI Prudential Life Insurance Company.
The regulator has taken this measure because it feels that investors are not aware about the risk associated with guaranteed highest NAV products. IRDA feels that investors get carried away by the promised returns. Highest NAV guaranteed products are those that promise to pay the highest value that the fund achieves over a certain period. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively.
IRDA has also altered regulations related to products offering death benefit. It has mandated that these policies should offer a minimum death benefit of at least 10 times the annualised premium in case of traditional products. Currently, a few products offer limited death benefit.
The regulator will issue detailed, final guidelines to insurers soon and is not approving any product until insurers align their products with the new guidelines.