IRDA (Non linked Products) Regulations 2019

Insurance Regulatory and Development Authority of India (IRDA) has released (Non linked Insurance Products) Regulations 2019 vied notification dated 8th July 2019. This regulatory notification issues clear guidelines protecting the public interest while designing and filing non-linked insurance products by life insurers of India.

IRDA has made it clear that existing products also will have to be modified within a reasonable period of time to comply with the new regulations. Let us have a detailed analysis of (Non linked Insurance Products) Regulations 2019

Objectives of IRDA regulation 2019

• To ensure that insurers follow prudent practices in designing and pricing of life insurance products and to protect the interests of the policyholders.
• To ensure sound and responsive management practices for effective oversight and adequate due diligence with regard to designing and pricing of life insurance products.

Highlights of IRDA regulation 2019

• The revival of policies permitted up to five years from the date of discontinuance of the policy. (Earlier it was up to two years only).
• Guaranteed surrender value of 30 % of total premium paid will be available if the premium has been paid for at least 2 years. (Earlier surrender was available after the completion 3 years only).
• Advance collection of premium allowed up to one year in the same financial year and up to 3 months if due is in the next financial year.
• Commutation of pension will be allowed up to 60 % of the fund value.(Earlier commutation was allowed up to 1/3 rd of the fund value only).
• Minimum death benefits in case of single premium (1.25 times of single premium) and regular premium policies (7 times the annualised premium) stipulated.
• Minimum term (5 years) and minimum premium paying term (5 years) for regular policies have been defined.
• Settlement option to take claims (death and maturity) in five instalments have been introduced.

Product Structure and Bonuses

Non-linked Products should be classified as participating products (“par products”) and non-participating products (“non-par products”).

For participating products

• Bonus and interim bonus shall be declared only on an annual basis.
• Terminal bonus or other forms of bonus, if any, shall become payable on the specified events or at the end of the term of the policy.
• Maturity benefit shall closely reflect asset share

For Non Participating products

• In the case of individual products, the benefits shall be explicitly stated in advance at the inception of the policy.
• In the case of group products, the benefits may be accrued at the end or at the beginning of the period as explicitly stated in the product filing procedure.

Death Benefit in Regulations 2019

Minimum Death Benefit

The minimum Sum Assured on the death during the entire term of the policy shall not be less than

• 7 times the annualized premium, for limited or regular premium products.
• 1.25 times the single premium for single premium products.
• 105% of the total premiums received up to the date of death.

For policies issued on minor’s life, the date of commencement of risk may start anytime on or up to two years from the date of commencement of the policy or on the policy anniversary after attainment of majority, whichever is earlier.

Surrender value of policies

All individual savings and protection-oriented products such as non-linked life insurance products, and non-linked pension products including deferred annuity products, other than pure risk premium products such as term insurance, health insurance, and immediate annuity products, shall acquire, both, guaranteed surrender value and the special surrender value, in the new regulations 2019.

Non-single premium products

The guaranteed surrender value shall be at least,

1. 30% of the total premiums paid (less any survival benefits already paid) if surrendered during the second year of the policy.
2. 35% of the total premiums paid (less any survival benefits already paid) if surrendered during the third year of the policy.
3. 50% of the total premiums paid (less any survival benefits already paid) if surrendered between the fourth year and seventh year of the policy, both inclusive.
4. 90% of the total premiums paid less any survival benefits already paid if surrendered during the last two years of the policy.
5. The surrender value beyond the seventh year shall be filed by the insurer under the product filing procedure. Such surrender value shall follow a smooth progression and converge to at least 90% of the total premiums paid less any survival benefits already paid, as the policy approaches maturity.

For Single premium products

The guaranteed surrender value shall be at least,

1. 75% of the total premiums paid less any survival benefits already paid if surrendered any time within the third policy year.
2. 90% of the total premiums paid less any survival benefits already paid if surrendered in the fourth policy year.
3. 90% of the total premiums paid less any survival benefits already paid if surrendered during the last two years of the policy.
4. The surrender value beyond the fourth year shall be filed by the insurer. Such surrender value shall follow a smooth progression, and converge to at least 90% of the total premium paid less any survival benefits already paid as the policy approaches maturity.
5. The surrender value of any subsisting bonus already attached to the policy shall be approved under the product filing procedure.

Miscellaneous provisions in regulations 2019

• Collection of renewal premium in advance shall be allowed within the same financial year for the premium due in that financial year.
• After payment of premiums for the first five completed policy years, the policyholder may be given an option to decrease the premium up to 50% of the original Annualized Premium.
• The grace period for payment of the premium for all types of non-linked insurance policies shall be fifteen days, where the policyholder pays the premium on a monthly basis; and 30 days in all other cases.
• The lapsed policy shall be allowed to get revived by paying arrears of premium for a period of five years from the date of discontinuance.
• Financial viability of products will be reviewed every year by an appointed actuary.
• Benefit illustrations at gross investment returns of 4% and 8% per annum shall be the part of sales literature.

With-Profit Fund Management

The with-profits committee shall be constituted with at least the following members.

• One Independent Director of the Board
• The CEO
• The CFO
• The Appointed Actuary
• and an Independent Actuary.

The with profit committee shall prepare a report which cover following topics.

1. Appropriateness of the Methodology and basis used in the calculation of asset shares, and justification for any change.
2. Bonus earning capacity including its calculation.
3. Sensitivity analysis of bonus rates and basis as appropriate.
4. A brief note on how Policyholders reasonable expectations (PRE) is met.
5. Any change in special surrender value with justification.
6. Treatment of Fund for Future Appropriation.
7. The expenses debited to the With-Profit fund and its appropriateness.

Download complete Gazette Notification of IRDA regulation 2019

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Anish L J

Anish L J is a ‘Financial Planner’ and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.