IRDAI draft proposal to suit customer needs, provide more benefits

Proposals in IRDAI's draft product guidelines like similar minimum death benefit across all ages and extending the revival period to five years are positives

The Insurance Regulatory and Development Authority of India (IRDAI) has put out draft product guidelines to review and standardise the 2013 regulations on linked and non-linked insurance products. This move has been necessitated by significant changes in trends in product structures, driven by customers’ needs. IRDAI had formed a Committee on Review of Product Regulations–Life to draft the regulations.

One positive proposal relates to differentiated pricing of protection products for customers who use wearables. Marketing Director and chief digital officer, Manik Nangia of Max Life Insurance said: "Insurance is likely to change from being a product that you purchased once into a service that you engage with regularly.”

Several changes have been suggested for both linked and non-linked products. One key change in the notification is that the minimum death benefit has been made seven times for regular premium products across all ages. The IRDAI is trying to remove the age factor and make the level of coverage universal for all. Earlier, the minimum death benefit was 10 times the annual premium for those less than 45 years and seven times the annual premium for those above 45 years. Now, policyholders across all ages will be able to avail of the same death benefit. Naval Goel, chief executive officer and founder, PolicyX said: "In my opinion, it a beneficial move for policyholders. Now, people of all ages will prefer to buy regular premium products because of consistency in death benefits." In case of single premium products, the minimum death benefit remains unchanged at 1.25 times, but the age-wise differentiation in death benefit has been removed.

The authority has also proposed to extend the revival period of policies from the current two years to five years for non-linked products. Experts believe that extending the revival period to five years will bring relief to customers of non-linked products, giving them a chance to revive long lapsed products. It has also been suggested that traditional plans should acquire guaranteed surrender value after two years, instead of the current three-year period. This will increase the attractiveness of traditional plans.

The draft guidelines also propose to allow partial withdrawal in market-linked pension products. Nangia of Max life said: “For policyholders, the recommendation to allow three partial withdrawals on pension products is a positive.” Allowing partial withdrawals will make these products more flexible and offer greater liquidity. It has also been recommended that policyholders be allowed to commute up to 60 per cent of the sum assured in pension products.

It has also been proposed to allow Ulip holders to switch their asset allocation. According to experts, this move will make it easier for investors to manage funds better in a volatile market situation.

The draft regulations further add that insurers can now design individual term and group term insurance products that offer a range of policy terms. It also has provisions for allowing modification of group products to allow a wider range of products based on customer requirements.