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IRDA bans advance premium payments beyond 1 month

In case you have opted for monthly premium payment mode, now you will be allowed to pay only three months premium in advance on the date of commencement of the policy

May 18, 2012 11:41 IST | India Infoline News Service
To prevent money laundering, Insurance Regulatory and Development Authority (IRDA) has barred insurance companies from accepting premium in advance beyond 30 days.

In a circular to chief executives of life insurers, the regulator said this move would also ensure regular payment of premium by policyholders.
“Collection of advance premium under both, linked and non-linked products, shall not be allowed except in the case mentioned,” the circular said.

In case you have opted for monthly premium payment mode, now you will be allowed to pay only three months premium in advance on the date of commencement of the policy. For example, if your policy commenced on 1st April, you will be allowed to pay three months advance premium on 1 April only.

At present, a policyholder can make a lumpsum payment of premium before the due date and get a nominal interest or some discount on it. According to insurers, it is sometimes convenient for policyholders to pay in advance.

Amit Sethi, owner, Amvi Financials, says, “The IRDA stance will prove to be beneficial for policyholders. The discount allowed to the policyholder for advance payment is very low compared to what they could earn by putting the same amount in the bank FD (fixed deposit).” He adds, “On the other hand, insurers were earning good interest on the advance money deposited by the investors.  It will also create a habit of regular investment amongst the policyholders.”
 
Mr Sethi elaborates, “The premium can be deposited for single quarter subject to not more than one month in advance from the due date.  If someone is going abroad, then a standing instruction can be requested to the bank to pay premium on the particular date.”
 

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