Life insurance distributors are pushing their policyholders to buy more policies before November 30, 2019, as the Insurance Regulatory and Development Authority of India (Irdai) life insurance product guidelines will come into force from December 1 onwards. This means insurers will withdraw non-compliant products before that.
‘New plans will come with an increase in premiums’, ‘Guaranteed returns will be lower’ are some of the reasons distributors are putting forth. “There could be an increase in premiums but it would not be too substantial. Moreover, more premium would mean better features for the customer,” says Karthik Raman, CMO and Head, Products, IDBI Federal Life Insurance.
In order to sell more policies till November 30, insurance distributors nowadays saying policyholders that "New insurance plans will come with an increase in premiums" or "Guaranteed returns will be lower". With these reasons, the insurance distributors lure new customers to increase their sell numbers. However, don't fall in the trap and wait till December 1.
Note that while there could be an increase in premiums but it would not be too substantial. Moreover, more premium would mean better features for the customer.
Why you should wait till December 1 to buy a life insurance policy:
Bonanza for pension plans:
Those who are looking to buy pension plans, the new guidelines will be worth waiting. “Pension plans will be more customer-friendly, thanks to additional flexibilities in withdrawal at maturity, premature withdrawal and investment options they will offer,” says Mrin Agarwal, Founder, Finsafe India.
New Pension plans sold after Dec 1:
For new pension plans, the maximum commutation-- lump sum withdrawal-- allowed at maturity will be 60 per cent, up from 33 per cent at present. However, in the new plans, the proceeds beyond the one-third withdrawn as a lump sum will continue to be taxable.
ULIPs:
From December 1st, the new guidelines will allow policyholders to decide whether they want the guarantee or not. If you are looking for a long-term investment horizon, you can choose to invest higher proportion inequities to create a larger retirement corpus.
Flexibility:
New features offer to postpone purchase decision flexibility for Ulip buyers. From December 1st, the minimum life cover under Ulips will be scaled down from 10 times the annual premium to seven times even for those under 45. New policies set to be introduced will be relatively more customer-friendly.
Policy Lapse:
To be noted, the inability to service recurring premiums over the long term is one of the key reasons for policy lapsations. This might happen due to the regular premium policies that are mis-sold as single premium ones. Genuine financial crunch can also lead to a payment default.
The new rule offers some relief as policyholders can reduce premiums by 50% after five years and keep the policy in force. The revival period for traditional plans has been extended to five years instead of two years currently.
Surrender value:
Surrender value is the amount you get in case you make a premature exit. For older policies, this was limited to 30% of premiums paid (minus any survival benefits paid out by the company). While in the new policies, this will go up marginally to 35% after 1 December.
For policies with tenures greater than seven years, its surrender values should increase progressively and converge to at least 90% as the policy moves closer to maturity.
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