Irda issues new insurance norms

The Insurance Regulatory and Development Authority (IRDA) on Monday issued new guidelines to the chief executive officers (CEOs) of all life insurance companies saying universal life products will now be known as variable insurance products (VIP), which would be offered only on the non-unit linked platform and will not be permitted on unit linked platform. The guidelines state that a VIP shall be defined as a non-linked life insurance product that provides a death benefit equal to the guaranteed sum assured plus the balance in the policy account. 


It would also offer a maturity benefit equal to the balance in the policy account together with a terminal bonus, if any, as applicable The guidelines further state that every policy shall have a corresponding policy account, the balance of which shall depict the accrual to the policyholder. The policy account shall be credited with premium net of all charges. The guaranteed rate and bonus shall be applicable to the balance of the policy account. IRDA also said that the statement of policy account shall be sent to the policyholder at least once a year.

According to the new guidelines, a VIP shall only provide mortality cover and no other contingency shall be covered other than death. The sum assured shall at least be ten times the annualised premium.

The policyholder will also have to be offered flexibility to change the sum assured during the currency of the contract, subject to a minimum sum assured as approved in the F&U clearance accorded by the authority. When the sum assured is changed, such a change will be effective from the immediate next policy anniversary. IRDA rules specify that no group insurance contract will be allowed for these products at this stage. According to the new IRDA norms the benefit payable on death in these products shall be the sum assured chosen by the policyholder, together with the balance in the policy account as on the date of death. The benefit payable on maturity will be the balance in the policy account plus the terminal bonus ( if any), as applicable. The guidelines also state that only level regular premiums will be permitted in these policies. Single premium or limited premiums shall not be allowed.

The premium will have to be shown separately as risk premium, charges, commission and policy components. The minimum policy and premium payment term has been fixed at five years and all variable insurance products will have a lock- in period of three years. All the VIP products will prescribe a surrender value, which will not be more than specified.

Top-up premium will be allowed throughout the term. At any time during the currency of the contract, the total top- up premium paid shall not exceed the sum total of regular premiums paid at that point of time. According to the new norms, no partial withdrawal shall be allowed under this product. However, a loan amount of not more than 60 per cent of the balance may be extended at a rate of interest as approved in the F& U clearance accorded by the authority.