Life insurers seek unit-linked relief

After pension plans, the insurance regulator might take a second look at the unit-linked guidelines as well. The Life Insurance Council has made a representation to the Insurance Regulatory Development Authority (Irda), seeking some revisions pertaining to unit-linked products.

The three areas in which relaxations are sought pertain to the grace period for renewal premiums, flexibility in structuring the charges keeping the overall cap and surrender charges from the sixth year.

“The grace period in case of renewal premiums should be increased to at least 60-90 days so that the policy holders could benefit from it. The current regulations prescribe a maximum grace period of 30 days, which is very short, given there might be some situations beyond the policyholders' control, which might force him to delay the premium payment,” said an official at a life insurance company.

According to the present guidelines, the grace period for policyholders if they fail to deposit the premium on the stipulated date is 15 days for monthly premiums and 30 days for others. If the policyholders fail to respond within the grace period then the policy lapses and the policyholders are given an option to either renew it or discontinue it against charges.

The second issue pertains to the surrender charges for high sum assured policies beyond five years. Irda has scrapped surrender charges for all unit-linked policies from the sixth year.

“Suppose for a high sum assured 15-year policy, if the policyholder decides to opt out after 5 years, then the insurance company will have to redeem all the investments prematurely. This will lead to losses for the company, which is unacceptable. So, we have asked the regulator to consider this issue,” said a source.

Irda caps the surrender charges for the first five years between Rs 6,000-2,000 for policies with annual premiums over Rs 25,000. For policies attracting annual premiums up to Rs 25,000, the surrender charges are capped at Rs 3,000-1,000 for the first five years.

Another issue the insurers are seeking a relaxation on pertains to the structure of the charges in the case of unit-linked plans. “We are okay with the cap on charges. But, there should be some flexibility on how the overall charges are structured,” an insurance official said. According to the Irda mandate, charges on unit-linked plans are evenly distributed during the lock-in period. “This was done to ensure that charges were not front-loaded. But, whether the charges should be front loaded or back-loaded should be left to the discretion of the insurance companies,” said an industry official.