New IRDA regulations to protect Indian policy holder's interest in Life Insurance.

IRDA has always looked out for insurance policyholder's interest as evidenced by IRDA (Protection of Policy Holders' Interests) Regulations 2002. With changes  in the  products offered, especially in the life segment, IRDA has come out with a new set of regulations to protect the interest of the policyholder, with effect from January 2014. These new regulations are seen as a move towards making life insurance policies more transparent and efficient.

As part of improving transparency, IRDA has made it compulsory that all insurance products provide the prospective policyholder a customised benefit illustration on guaranteed and non-guaranteed benefits at gross investment returns of 4% and 8% respectively. This move will ensure that the policyholder will get an idea of the returns every year as well as at the time of policy maturity.

To improve the efficiency of the life products sold in the market, IRDA had directed that the minimum sum insured for all policies will now be 10 times of the annual premium for people below 45 years and above 7 times for 45 years and above. At any point the death benefit will have to be at least 105% of all premiums paid till date. This guideline would go a long way in ensuring the that the policyholder benefits out of his policy.

As a step to protect the larger interests of the policyholder, IRDA has now specified the surrender value that is to be paid to the policyholder especially after the completion of 5 years.  Till now there were no pre-set rules. Under the new regulations,  the minimum guaranteed surrender value will be 30% of all premiums paid going up to 90% of the premiums paid in the last two policy years. This further ensures the liquidity of policy held.

As an incentive to sell long term policies, these guidelines have linked intermediary commission to the term of the plan sold. Short-term policies will have a lower commission than traditional products with a policy term of 12 years or more. In case of regular premium insurance policies, a policy with a premium paying term of five years will limit commissions to 15% in the first year, 7.5% in the second and third year and 5% in the subsequent years. Products with premium paying term of 12 years or more will have first year commissions up to a  35% in case the company has completed 10 years of existence and an unbelievable 40% for the company in business for less than 10 years.

Let's hope these regulation would improve the policyholder's benefits, reduce complaints of wrong  selling and bring transparency and clarity to a field where misconceptions and lack of awareness still exist