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Insurance Laws and Practices

Notes 14. Every insurer shall provide life insurance or general insurance policies (including insurance
for crops) to the persons residing in the rural sector, workers in the unorganized or
informal sector or for economically vulnerable or backward classes of the society and
other categories of persons as may be specified by regulations made by IRDA.
15. Failure to fulfil the social obligations would attract a fine of ` .25 lakh; in case the obligations
are still not fulfilled, license would be cancelled.

7.3.1 Salient Features of IRDA Guidelines for Insurance Plans

You need to know that the new guidelines issued by IRDA aim to make insurance policies more
customer friendly.
The Insurance Regulatory and Development Authority (IRDA) has notified changes made to the
guidelines on design of life insurance products in the gazette in February 2013. All existing
group products will stand withdrawn from 1 July 2013 and all individual products from 1
October 2013.
These guidelines, effective from October 2013, aim to make insurance policies friendlier. Listed
below are some salient features of these guidelines.
The new guidelines have introduced three broad categories of products—Traditional insurance
plans, variable insurance plans (VIPs) and unit-linked insurance plans (ULIPs).

Traditional Plans: According to the guidelines, the product design of traditional plans would
remain almost the same. These plans would continue to come in two variants: Participating and
non-participating plans.

For participating policies the bonus is linked to the performance of the fund and is not declared
or guaranteed before. But, the bonus once announced becomes a guarantee. It is usually paid in
case of death of the policyholder or maturity benefit. This bonus is also called reversionary
bonus.
In case of non-participating policies, the return on the policy is disclosed in the beginning of the
policy itself. In both cases, a policyholder should calculate the net return to assess the total costs.
New traditional products will have a higher death cover. For regular premium policies, the
cover will be 10 times the annualised premium paid for those below 45 and seven times for
others. The minimum death benefit in case of traditional plan is at least the amount of sum
assured and the additional benefits (if any).
ULIPs: In case of ULIPs, life insurers will now have to inform policyholders of the reduction in
yield of their ULIPs on a monthly basis. Reduction in yield—difference between gross and net
yields (expressed in %)—refers to the lowering of investment growth within a fund due to
various charges.
The net yield can be arrived at after deducting all prescribed charges from the gross yield.
Insurers will also issue annual certificates mentioning the premiums paid, charges and taxes
deducted from the fund value, and the final payments made.
Variable Insurance Plans: The guidelines have mentioned that VIPs will guarantee a certain
minimum rate of return at the beginning of buying a policy—though they are linked to an
index. As VIPs will be treated at par with ULIPs, those products will follow the same commission
package for ULIPs. Under linked products, agents are entitled to commission of up to only 10%.
The charge structure and discontinuance norms of VIPs will be in line with ULIPs.
This basic minimum rate of return is also called floor rate. Additional benefits depend on the
type of the policy. In the case of a non-participating VIP, the additional benefit will be mentioned
at the time of buying the policy and may accumulate in the policy at specified intervals.

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