The Insurance Regulatory and Development Authority of India (IRDAI), the country's insurance sector regulator, may provide insurance cover to policyholders who discontinue their unit-linked insurance plans (ULIPs) within five years of buying the policy. As of now, insurance cover ceases when the policy is discontinued.
Currently, if one stops paying premium within the first five years of buying a unit-linked policy, the policy gets discontinued and the fund gets transferred to a discontinuance fund after deduction of surrender charges. This discontinued policy fund earns an interest rate of 3.5 per cent per annum till the completion of the lock-in period. When the lock-in period is over, the insurer sends the proceeds, including the interest earned, to the policyholder.
IRDAI is now evaluating the situation, two industry insiders, with knowledge of the development, said on condition of anonymity.
According to them, the regulator is reviewing all existing regulations enforced in 2013. As part of the exercise, the regulator may also stop deducting discontinuance charge on ULIP, which gets deducted when one fails to pay premium within the first five years of buying the policy.
Surrender payouts continue to be a serious issue for the life insurance industry. According to the latest annual report released by IRDAI, life insurers paid Rs 80,356 crore to policyholders on account of surrenders and withdrawals in 2015/16, down by 20 per cent, which experts say is a positive trend for the industry.
In case of Life Insurance Corporation of India (LIC), out of Rs 37,292.24 crore surrenders in 2015/16, ULIP policies accounted for Rs 8,960.57 crore (24.03 per cent) as against Rs 23,224.49 crore, (49.90 per cent) in 2014/15.
In case of private insurance industry, the ULIP surrenders accounted for Rs 37,489.04 crore (87.05 per cent) in 2015/16 as against Rs 48,724.32 crore (90.48 per cent) in 2014/15.