Traditional life insurance products to get a new look soon

IRDA is looking to restructure the design of traditional life insurance products.

A committee with IRDA and industry experts from Life Insurance Council, officials from private and public life insurance company is in the process of restructuring the traditional life insurance products.  According to industry experts, the regulator is expected to cap commission for agents, expenses charged by insurers and surrender charges. It will also specify minimum death benefits, the minimum life protection component and a minimum guaranteed amount to be paid when a policy is surrendered.

The regulator will issue the new rules in a month’s time as it is in the process of framing the changes.

“The regulator should give some time to the life insurers to adapt to the new changes. It is difficult for us to constantly modify our marketing strategies due to frequent changes. However, the changes are for the betterment of the industry and will curb mis-selling,” said a senior official of a private life insurance company.

 The new rules will also require an insurer to manage expenses and surrender charges in such a way that the maximum difference in the gross and net return at maturity in a traditional life product does not exceed four percentage points. This rule will push the insurers to cut down agent commission and operating expenses, shared an industry expert.

“We feel that the regulator will set a minimum surrender value for traditional life products under the new guidelines. There will be different slabs of surrender charges for different years of policy completion,” said another senior official of a bank owned life insurance company.