Be prepared to shell out a little more on your insurance premiums and receive less value if you decide to exit your policy before maturity. In its draft norms for traditional products, the Insurance Regulatory and Development Authority (Irda) has proposed an increase in agents’ commissions and a reduction in surrender value of policies.
The draft, however, brings good news for agents. The minimum commission for agents has been raised from 14 per cent of the premium for the first year to 15 per cent, for five-year premium-paying term policies. Besides, the regulator has proposed a specific commission for each year starting from a five-year premium paying term to 12 years plus premium paying term.
Earlier, five to nine years, 10 to 14 years and 15 years and above were classified as one category with a common commission. In the present draft, Irda has specified commission for each year separately and has increased the commission rates.
“Increasing and allocating separate commissions for each year is a step in the right direction. This will curb mis-selling to a great extend and motivate agents as well,” said G N Agarwal, chief actuary at Future Generali Life Insurance.
If the insurance regulator has its way, the surrender value of policies will also come down. In the exposure draft, Irda has proposed 30 per cent for policies that are active for three years, down from 50 per cent.
According to Agarwal, maintaining surrender value for long-term products is going to be more difficult. “This is because when the premium paying term of a policy is longer, the premiums are comparatively much lower, hence insurers may not be able to retain much even in the first two to three years.”
P Nandagopal, managing director and CEO at IndiaFirst Life Insurance, said while putting a cap was good, the reduced surrender value was not fully justified from the customer’s point of view. “It is too low a guarantee and the customers should get value for their money spent. We also found that the expenses in traditional products are more than that in Ulips but the surrender value is lower than in traditional products,” he said.
Irda had said all individual non-linked life insurance and pension products should acquire minimum guaranteed surrender value (GSV). The GSV is a sum of guaranteed surrender value and the surrender value of the any subsisting bonus already attached to the policy. Unit-linked insurance plans already have such a minimum guaranteed surrender value.
“The minimum guaranteed surrender value would be 30 per cent of the total premiums paid less any survival benefits paid, if the policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 70 per cent of the total premiums paid less any survival benefits already paid. If surrendered during the fifth to the seventh policy year, it would be 90 per cent of total premiums paid, less any survival benefits already paid,” the draft norms said.
The insurer need to file the surrender value beyond the seventh year under the ‘file and use’ procedure for clearance.