Here’s What You Need To Know About IRDAI’s Role in New ULIPs

May 29, 2018 | 1 year ago | Read Time: 3 minutes | By iKnowledge Team

The Unit-Linked Insurance Plan purchased after 1st September 2010, though discontinued due to non-payment of premiums, can still be revived. IRDAI is evaluating the situation, and if speculations are to be believed, the IRDAI may stop deducting discontinuance charge on ULIPs. As of now, if you fail to pay the premium within the first five years of policy purchase, discontinuing charges are required to be paid. However, IRDAI is taking measures to help policyholders to revive their discontinued policy and is also providing cover for discontinued ULIPs.

Discouraging early surrenders is the idea behind giving an extension. Because of a discontinuing charge, policyholders will stand to lose if they discontinue in early years. Hence, the decision of giving more time to revive the policies was taken.

Additionally, on the discontinued funds, IRDA has allowed for a management charge. A minimum guarantee until the lock-in-period of five years is offered to a policyholder that goes to a discontinued fund. These guidelines will be effective in 2018 from November 1st.

A look at how you can revive your policy and what charges you will need to bear:

  • For policies bought after 1 September 2010

Your policy will be in the lock-in period of five years if you have bought it after September 2010. After a grace period of 30 days, the insurer will then send you a notice within 15 days and will give you the time of another 30 days to pay the premium (initial 75 days). After that, the funds will be moved to a discontinued fund, and your policy will be discontinued too.

You have two years or time until the expiry of the lock-in period whichever comes first once the proceeds move to the discontinued fund to revive your policy. After lock-in period has completed, the insurer will return the invested corpus if you do not receive your policy during this period. For example, you will only have a year to revive your policy if you skip paying your premium in the 4th year.

The policyholder will have two years to revive the policy, and on failing to do so after the notice period expiry, the fund shall move to the discontinued account. The cover will be applicable during the initial notice period. However, once the policy is discontinued and the discontinued funds get the proceeds, the cover will cease, and you will not receive it.

Discontinuance charge, fund management charge, and revival charge are typically the three kinds of charges applied to a discontinued policy. All three charges are applicable to policies which are less than five years old. When a policyholder does not revive the policy within the notice period, before the funds are moved into a discontinued fund, a discontinuance charge is deducted. In the fourth year, the charges range from INR 2,000 to INR 6,000. There is no discontinuance charge for the fifth year. Before moving the funds to the discontinuance fund, the insurer will deduct this charge. The charge gets added back if the policyholder decides to revive the policy in two years.

As applicable to savings bank accounts of State Bank of India, insurers will need to give a minimum interest. To levy fund management, a charge of up to 50 basis points per annum (one basis point is one-hundredth of a percentage point) has been allowed by IRDA to insurers. This fund management charge is irreversible.

However, the discontinued policy proceeds cannot go below the guaranteed threshold.

A revival charge must be paid at the time of reviving the policy. However, both fund management and discontinuance fund charges are applicable. After the lock-in period of five years get over, the funds will be paid.

  • For policies that are more than five years old

The extension of two years will not apply once your policy completes five years and goes beyond the lock-in period. You will get 75 days to revive a policy, upon skipping a premium. After that, the policy will terminate after the insurer gives you the fund value. There will not be any extension for policies that are more than five years old. The idea is to discourage early surrenders.

Since the insurer pays the fund value immediately after the notice period expires, and there is no management of funds, there is no management fee or discontinuance charge applicable for the same after the expiry of the notice period. In this case, the regulator has broadened this window to revive your policy.

Advt. no.: IA/MAY 2018/3993

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