No surrender charge from 5th policy year:IRDA

No surrender charge from 5th policy year:IRDA

Breather provided by excluding mortality charges

“No surrender charge can be levied by an insurer for policies surrendered from the fifth policy year and thereafter the policyholder will be entitled to receive the full fund value on such surrender,” the Insurance Regulatory and Development Authority (IRDA) said in a circular to all life insurers.

Moreover, IRDA gave some breather to insurers by excluding the charges levied by these firms on their customers for incidents like death and disability from overall limit on charges on their ULIP schemes, the products that are invested in the capital markets. For those products which have maturity of 10 years, insurance companies have to maintain the difference between gross yields and net yields at 300 basis points.

When various charges levied by insurers are added on to net yield, it becomes gross yield.

“The difference between gross yield and net yield cannot exceed more than 300 basis points,” IRDA had said.

IRDA further said that fund management charges should not exceed 135 basis points irrespective of the tenor of the contract.

There were demand by the life insurance industry to exclude mortality and morbidity charges out of the cap.

IRDA said that certain concerns were expressed by the industry on the circular issued last month and meeting of the life insurers with IRDA took place on July 29 2009 to discuss all these issues.  Life insurance companies on Friday welcomed the IRDA’s move to remove mortality charges from the ‘cap on charges’ on ULIPs products.

Last month, insurance regulator IRDA put a cap on overall charges that life insurance companies can levy on subscribers of their Unit Linked Insurance Policies (ULIPS).  IRDA has now said that the mortality and morbidity charges may be excluded in the calculation of the net yield.

 Moreover, it allows companies to offer older customers the benefits of life insurance, without crossing the cap, Ramachandran said.

This is a logical move as the charges for insurance component are dependent upon various factors including age of the individual, type of insurance cover and amount of insurance cover, he said.

DH Newsletter Privacy Policy Get top news in your inbox daily