Customers have to shell out more money, according to the new norm
Discontinued Ulip policies can now be revived within two years of the last premium paid but not after the lock-in period has expired, according to an IRDA circular. So if a customer has paid the premium only for a year after buying Ulip, he can revive the policy in the next two years.
To avail this benefit the policyholders have to pay more to the insurers. The new norm will be effective from next month.
Earlier, on discontinuing, the policyholder had to pay the surrender and fund management fees. But according to the new norm, insurers are required to ensure that they provide a minimum return equivalent to the savings deposit of SBI which is currently 4%. This is the return that the policy has to receive after the insurance company deducts its fund management charge. RBI has capped the fund management charges on discontinued policies at 0.5% a year on a discontinued policy, that too after ensuring the guaranteed return (of four per cent).
“It is a good move by IRDA which will give policyholders enough time to breath. But before taking any step customers should understand the terms and conditions mentioned in the policy bond,” said President of a private life insurance company.
P Nandagopal, Managing Director and CEO, IndiaFirst Life Insurance too feels investors will benefit. “Firstly, customers should be aware of the revival requirements of their insurer before they discontinue a policy. The new norm will only be beneficial if only the policyholder continues for the full-term,” said Nandgopal.
Earlier, policyholders had to revive their policies within the stipulated grace period of 30-45 days or the policy lapsed. The insurer deducted a surrender charge of six per cent in the first year and then moved the money into a separate discontinuance fund that consisted of the fund value of all discontinued policies with the income earned on those. Policyholders were paid once the lock-in period (now five years) ended.