The country’s insurance regulator, Insurance Regulatory Development Authority of India (IRDAI), is considering to provide an insurance cover to those ULIP policy holders who discontinued their policy within the first 5 years. Presently, once the policy is discontinued, the insurance cover stops.
As per the present norms, if the policy holder does not pay premiums regularly in the first five years of buying the unit linked policy, the surrender charges are deducted from the fund which then gets transferred to a discontinuance fund, and the policy gets discontinued. Till the lock-in period continues, the policy earns an annual interest of 3.5%, post which, the insurance company sends the fund value along with the interest to the policy holder.
As per sources, this situation is being analyzed by the regulator along with the other regulations which were introduced in 2013. IRDAI might stop the deduction of surrender charges which are charged by the insurer when the insured fails to pay the premium in the first 5 years.
The surrender charges are a big concern for the life insurance industry in India. IRDAI recently released a report which stated that the life insurance companies pay Rs. 80, 356 crore on account of withdrawals and surrenders to policy holders in 2015-16 which is a reduction of 20% from the last year, thus showing a positive trend. In 2015-16 for LIC, around 24.03% of the surrenders were for ULIP policies whereas for the private insurers surrenders of ULIPs accounted for 87.05%.
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