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6 changes in life insurance policy guidelines from February 1

IamCheated.com Research Team | January 30, 2020  6:03:pm

6 changes in life insurance policy guidelines from February 1

The Insurance Regulatory Development Authority of India (IRDAI), has asked insurance companies to make changes in Ulips and traditional life insurance policies which will come into effect from February 1st 2020. In this blog, we will discuss these changes introduced by IRDAI and how they impact the policyholders.

1. Increase in the revival period

As per the guidelines issued by IRDAI, insurance companies have been asked to increase the time period allowed for the revival of the insurance policies. At present, the policyholders are allowed 2 years to revive a ULIP. Now, these two years are going to be increased to 3 years. The policyholders of non-linked insurance products will be provided a 5 years revival period

2. Reduction in the sum assured

Sum assured is the amount which the insurance company is going to pay the nominee on death of the policyholder. From February 1, the minimum sum assured for ULIPs for a policyholder below the age of 45 years; will be reduced from ten times to seven times the annual premium paid.

See Also: How to Choose the Right Insurer for Life Insurance?

3. Partial withdrawal

From February 1st partial withdrawal is allowed thrice during the entire policy term. You can make a partial withdrawal to the extent of 25% of the fund value on completion of five policy years. The partial withdrawal is linked to the defined life events like higher education, marriage, critical illness, property construction/purchase. There will be no exit load or surrender charges for such withdrawals.  However, this facility is not available for 'Group Unit Linked insurance plans'.

4. Surrender value

Surrender value is the amount you receive from the insurance company when you decide to terminate the policy before maturity.

After 1st February, if you terminate the traditional life insurance policy, you can get a guaranteed surrender value after the second year and you don't have to wait for three years. If you terminate the policy after 2 years from commencement, a fixed sum of up to "30% of the total premiums paid less any survival benefits already paid" will be given as the surrender value.

In the same way, you can get '35% of the total premiums paid less any survival benefits already paid' on surrendering the policy after 3 years of commencement. For the 4th to 7th year, the value is increased to 50%.

5. Withdrawal limit on pension raised

Insurance companies must allow policyholders withdraw a larger lump sum of 60% at vesting, surrender or death, as opposed to the current 33%.

An important thing to keep in mind is, when you withdraw money from pension plans, only withdrawal of one-third corpus is tax-free and not the entire 60%.

6. Guarantee on maturity proceeds on pension plans is not mandatory

From February 1st, the insurance companies offering a mandatory guarantee for maturity proceeds on pension plans becomes optional. Currently, it is mandatory for insurance companies to offer guarantees on maturity proceeds.  Because of this, they had to invest in debt instruments to give guarantees on maturity proceeds. This actually lowers the potential return on investment. After February 1st, policyholders can decide whether they want assured returns.

See Also: Why the Waiting Period in Health Insurance plan was Introduced?

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