The insurance regulator has proposed to discontinue late fee and interest on policy revival. The draft on product design circulated by the IRDA (Insurance Regulatory and Development Authority) to life insurers also proposes to increase the time for a customer to revive the policy.
According to IRDA’s draft on product design, on revival of a discontinued policy, the insurer shall collect all dues and unpaid premiums without charging any interest or fee. But, insurer may levy policy allocation charge and any guarantee charge, if such guarantee is reinstated. No other charges can be levied. But, insurers may still collect the late fee and interest on discontinued policies that are already in force.
IRDA has also asked insurers to take written consent from the policyholder 45 days before the end of lock-in period (five years) to revive the policy or to pay the fund value. The IRDA’s draft on product design said, insurance plans, which have not completed two years of revival period at the end of the lock-in-period, the insurer shall take a written consent from the policyholder to revive the policy in the two years of revival period, till such time the fund shall continue to remain in the ‘discontinuance policy fund’.
In case of ‘discontinuance’, fund value of an insurance plan is credited to the discontinued policy fund and the proceeds are refunded only after completion of the lock-in period. The proceeds from discontinued policies include the fund value as on the date the policy has discontinued, after addition of interest computed at minimum interest rate of 3.5% per annum. In its draft guidelines, IRDA has asked life insurers to re-file their existing products and withdraw the same by September 30.
Krishan Dwivedi, CEO & Director, GetMeInsure.com , said, “The IRDA draft on product design is consumer centric and it has to be that way as IRDA is there to protect the interest of the consumer. Knowledge about insurance is still very low in India. Consumers still do not understand the importance of insurance as a risk hedging tool. For generations’ life insurance has been bought and sold as an investment tool by consumers and agents.”
Mr Dwivedi added, “Insurance is an expensive purchase for any individual; we need to educate the customer about the importance of buying insurance as a risk hedging tool and it is very expensive if they discontinue the policy. It will be in the interest of both the company and the consumer if there is an easy way to revive a lapsed policy.”