Here’s how your life insurance plans are set to change

Insurance regulator IRDA has introduced sweeping reforms for various life insurance products. In its master circular dated 12th June, 2024, the insurance watchdog laid out a slew of customer-friendly directives for life insurance companies to follow with immediate effect. Read on to know all about how these new rules will impact you :
Customer information sheet
Going ahead, all life insurance companies will have to mandatorily provide their policyholders with a CIS, or Customer Information Sheet. This will serve to explain to them the basic features of the policy in very simple terms, and will include essential details like sum assured, benefits, policy loan options, free-look period and procedures for making claims and redressing grievances.

In addition, benefits payable to the policyholder if they survive the policy tenure (maturity benefits), upon death and surrender of policy should also be clearly spelt out. Along with this, the policyholders are also entitled to a customised illustration of how the policy will benefit them while they are being sold the policy. CIS should also be made available to the policyholder in their local language on request.
Free-look and grace period
Policyholders will now have a 30-day window from the day they receive the policy document to review and cancel the policy if they want. If the policy is cancelled within this period, they will be entitled to a full premium refund. Earlier, this period only lasted for 15 days.

For grace period, which basically refers to the additional, penalty-free window given to the policyholder to make premium payment post due date to avoid losing coverage, the windows will differ depending on premium payment frequency. If you pay the policy premiums on a monthly basis, you will get a 15-day grace period. For premium payments made on a quarterly/half-yearly or annual basis, the grace period will be of 30 days.
Penalty on violating Ombudsman’s word
The insurer is bound to comply with the Insurance Ombudsman’s award within 30 days of receiving the same. In case the same is violated, the insurer will have to pay a penalty of Rs 5,000 per day to the complainant.
Higher value on early policy surrender
Often, policyholders ended up with a low, negligible amount as refund upon surrendering their insurance policy. This is set to change with IRDA’s latest directives. Now, policyholders will be eligible for surrender value even if they decide to surrender their policy after just one year.

Previously, only 50% of policy premium would be refunded, provided the policyholders surrendered their policy between years 4-7 of the policy tenure. Moreover, they would lose the entire premium amount if they surrendered their policy within a year.

Customers will also be entitled to higher special surrender value (SSV) from now on. This SSV should be at least equivalent to the expected present one of the these three:

1. Paid up sum assured, or present value of your sum assured after you stop paying premiums
2. Paid up future benefits
3. Accrued benefits

Also, it will be compulsory for life insurers to offer loans to policyholders as per the eligible surrender value of the policy. Says Vivek Jain, Head, Investments, Policybazaar.com, "The provision for higher Surrender Value (SV), calculated at a prevailing 10-year government securities rate with a limited spread, significantly increases the value returned to policyholders in the event of a policy surrender, after the completion of first year. The mandatory facility of policy loans across all life insurance savings products and the allowance of partial withdrawals under pension products will provide vital financial flexibility, which will enable policyholders to meet liquidity needs and specific financial goals. These measures will certainly enhance trust and transparency in the industry."
Partial withdrawal allowed from pension products
Policyholders will be allowed to make partial withdrawals, provided they have 3 years of continuous coverage under their insurance-cum-pension plan. Also, these withdrawals cannot be more than 25% of the total premiums paid till date. The insurer cannot use this withdrawal towards making any adjustments in the policy's sum assured.
However, this withdrawal will only be allowed for specific situations, like funding children’s higher education/marriage, constructing a house, treating critical illnesses, starting a new venture or for skill development purposes.