IRDA has brought about some major changes for the benefit of policyholders and certain regulations have been brought about. They cover term insurance, endowment, ULIPs and pension plans as well.
Here are top things you need to know about new IRDA rules for Life Insurance Policies:
Higher withdrawals would now be allowed in pension plans. Earlier it was one- third only but now it has been raised to 60%. However, it should be noted that in spite of this, the new plan would not be at par with the National Pension System where the 60% allowed withdrawal is also tax- free. In this case, only one- third would be tax free with only the withdrawal percentage increased. Also, for those who have five year lock in periods, part withdrawals would be allowed after it ends. The policy holders will be able to make part withdrawals thrice during the policy tenure and for 25% of the total fund amount.
Also, with the new rules, policy holders will be able to decide if they want to get assured benefit or not. Those who are younger and can afford to take more risks can also choose to invest their funds in equities. At present, investors have to invest in debts because they had to guarantee returns on a fixed date but now it will give them a chance to get higher returns.
When it comes to buying annuities, the buyers will have a greater choice. There is now the option of open market while purchasing annuity and up to 50% of the investible corpus is a major change noticed. At present, the policyholder has to buy annuities on maturity only, whether he or she wants to or not. They also cannot look around for higher annuity rates because of lack of competition.
Now, it is also not necessary to wait for three years to acquire a guaranteed surrender value which is the amount one receives if one decides to exit prematurely. Policies will now acquire a the minimum guaranteed surrender if they have paid at least two years premium and one will get 30% of the amount. It has been stated that the surrender values should be increased progressively and should come to at least 90% as the maturity approaches.
There is also the flexibility of reducing premiums after the fifth year policy. Insurance premiums have now to be serviced annually and most often go through financial difficulties while paying premiums because of which the policy often lapses. The premiums can now be reduced by 50% and that will keep the policy in force till one is able to pay the regular premiums again.
In case of ULIPs, the minimum cover that is offered will come down from the 10 times of the annual premium to seven times. The insurers, at present, have to offer a minimum cover of 10 times to those who are under 45 and seven times to those who are above 45. Those who are not interested in the protection aspect, for them smaller cover would mean lower mortality charges. However, to maximize tax benefits under Section 80C and 10 (10D), the life policy will be offering a cover of at least 10 times the annual premium. The policies which have seven times cover, will not get breaks under 10 (10D).
Those who would want to revive their ULIPs will also get three years instead of the previous two years. Those who have non- linked plans can enjoy five years. Also, the insurance companies will have to notify them within three months of lapse so that they can start the procedure of reviving the policies.