The IRDAI is reviewing extending insurance cover to policyholders who discontinue their unit-linked insurance plans (ULIPs) within five years of buying the policy.
As part of the review, the regulator is considering a halt to discontinuance charges on ULIPs, that are currently deducted when one fails to pay the premium within the first five years of buying the policy, reported Business Today.
At present, insurance cover ceases when the policy is discontinued. The accumulated premium fund is transferred to a discontinuace fund after deduction of surrender charges. This discontinued policy fund earns an interest rate of 3.5% per annum till the completion of the lock-in period. When the lock-in period is over, the insurer sends the proceeds, including the interest earned, to the policyholder.
Policy surrenders are a serious issue for the life insurance industry. According to the latest annual report released by IRDAI, life insurers paid INR80,356 crore (US$12.42 billion) to policyholders on account of surrenders and withdrawals in the financial year ended March 2016.