As the extended deadline to introduce life insurance plans as per the new guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI) comes to an end, life insurance companies have started offering revamped plans from February 1, 2020 after withdrawing the existing plans.
A policyholder will now get more time to revive a policy in case he/she fails to pay premium within 6 months after it gets due and the policy gets lapsed. Previously, the revival period of the policies were 2 years from the date of first unpaid premium (FUP), but according to the IRDAI guidelines, the revival period has now been increased to 3 years for ULIP plans and So, you will get more time to revive your new policy, but after paying the premium for entire revival period along with interest.
Unlike the previous requirement that minimum sum assured (SA) should be 10 times the annual premium, anyone would now opt for minimum SA of 7 times the annual premium in new Unit Linked Insurance Plans (ULIPs). Earlier, only people above the age of 45 years could opt for ULIPs with lower SA.
While the lower SA would reduce the mortality charge, but the maturity would not be completely tax free if SA is less than 10 times the annual premium.
No defined partial withdrawal rules were available in the previous plans, but under the new unit-linked plans, you may partially withdraw 25 per cent of the fund value trice during the policy term after completion of 5 policy years for events like – higher education, marriage of son/daughter, critical illness of self/spouse, buying/constructing a residential house.
Defined partial withdrawal option would provide much-needed liquidity, but your insurance cover would also reduce.
As equities are known for generating higher returns in the long-term, you may now opt for higher equity exposure in the new deferred annuity plan, by choosing ‘no guarantee option’ for the maturity proceeds.
Equity investments are subject to market risks, so by opting the ‘no guarantee option’ to increase equity exposure, you would put the capital invested under risk, even as it would increase the chance of getting higher maturity value.
Unlike the earlier option of 33 per cent commutation, under the new plans that aim at developing retirement corpus, you would get a chance to commute 60 per cent of maturity value at vesting.
Even as the new plans would allow you to commute higher amount, but you would get tax benefits only on 33 per cent of the maturity value and the rest would be taxable. Moreover, higher commutation would result into lower investment in annuity plan and lower pension.
As different life insurers used to pay different surrender value on surrender of earlier policies, IRDAI has defined the minimum year-wise surrender value for the new plans. The minimum surrender value, before deducting already paid survival benefits, if any, would now be 30 per cent of total premium paid after 2 years, 35 per cent after 3 years, 50 per cent for the 4th to 7th years and 90 per cent if surrendered in last two years before maturity.
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