The regulator has revamped traditional policies by adding new changes.
IRDA, yesterday issued final guidelines on life insurance policies. The new guidelines have made changes in commission, minimum sum assured, and guaranteed surrender value on such policies. The maximum commission for companies with more than 10 years of business has been brought down to 35 percent from 40 percent. Companies with less than 10 years of business can pay commission of 40 percent to individuals; they cannot pay more than 35 percent to brokers and intermediaries like banks.
To protect the interests of the policyholders, the regulator has kept guaranteed surrender value at 30 percent of the premium paid in the second and third year, and 50 percent if surrendered between the fourth and seventh year. The surrender value varies with products and the term of the premium paid. On pension products, the regulator has mandated insurers writing pension will have to provide annuity.
The new guidelines on non-participating index linked products will largely follow the Ulip structure. A non-participating plan does not participate in the profit of the fund and the benefits are clearly defined in the beginning. Recently, insurance companies had launched traditional plans with benefits pegged on indices like government securities yields. The regulator had called them index-linked products and they will have to conform to the cost structure of Ulips.
The regulator has also asked insurance companies to spell out the rate of return to policyholders who have difficulty in figuring out returns generated by index linked products. “As per the new guidelines it will be difficult to differentiate between index-linked traditional products and Ulip,” said Dr P Nandagopal, IndiaFirst Life insurance.