Page 114 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 7: Insurance Regulatory and Development Authority Act (IRDA Act)

Participating VIPs normally provide a regular non-guaranteed bonus, which will be guaranteed Notes
once declared. Each policyholder will have a policy account in which the premiums—net of
charges—will get credited. The minimum floor rate and additional rates will apply to this
balance. On maturity, the policyholder will get the value in the policy account.

Reduced Commissions

The IRDA guidelines have reduced commissions on short-term policies and have linked the
quantity of commissions to the premium paying period for all products.
Agents of single premium non-pension products will receive remuneration of up to 2% of the
premium paid. In case of regular premium insurance policies, a policy with a premium paying
term of five years will pay up to 15% in the first year, 7.5% in the second and third year and
5% subsequently. As the premium paying term increases to 12 years and above, the commissions
payable in the first year increases up to 35% in case the company is at least 10 years old and
40% in case the company is less than 10 years old. The regulator has framed the entire format on
the basis of tenure of the policies
In case of direct sale of products, such as the online mode, there will be no commissions and this
benefit will be passed on to the policyholder.

Death Benefit and Surrender Value

The minimum death benefit in case of VIPs and ULIPs is the policy account value or higher of the
two. The minimum guaranteed surrender value for traditional plans has been increased. For
traditional plans, with a premium paying term of 10 years or more, there will be a guaranteed
surrender value after three years. For premium paying terms of less than 10 years, the guaranteed
surrender value will accrue after the second year. This guarantee surrender value will be 30% of
total premiums paid.
Currently, the guaranteed surrender value is usually 30% of all the premiums paid minus the
first-year premium and is paid only if premiums have been paid for three years.

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Caution According to the new guidelines, the surrender value becomes 50% between the
fourth and the seventh years, after which the insurer would have to file a surrender charge
that needs to be cleared by the regulator.

Health Insurance

The IRDA in February 2013 has also issued guidelines to standardize health insurance in India.
Now, all health insurance policies would be renewable for lifetime and will have an entry age
of at least 65 years. All policies except customised ones will be renewable for life time. Insurers
have to settle claims within 30 days after the receipt of all the documents.

Did u know? The IRDA has introduced 15 days free-look period—A period where a new
insurance policyholder is able to terminate the contract without penalties such as surrender
charges.
In case of a claim, no-claim bonus can be reduced proportionately, however it won’t be zero. In
a health insurance policy, when a renewal is made without any claims in the preceding period
of the policy, the insurer offers a bonus to the policyholder. This bonus is usually in the form of

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