IRDA caps firms' penalty for ULIP pre-closure
The Insurance Regulatory and Development Authority on Monday issued new regulations on charges that insurers can levy on discontinued unit-linked insurance policies. HT reports.india Updated: Jul 12, 2010 23:28 IST
The Insurance Regulatory and Development Authority (IRDA) on Monday issued new regulations on charges that insurers can levy on discontinued unit-linked insurance policies (ULIPs).
It has put a maximum absolute cap of Rs 6,000 in case a policy is discontinued.
In the old regime, the cap was defined in percentage terms. If the invested amount was high, the insurers could charge a high penalty if the policy was discontinued.
The notification has come earlier than expected and IRDA has issued stage-by-stage caps on charges that insurers can levy in case of discontinuance of policies.
The maximum that can be charged is Rs 6,000 if the policy is discontinued in the first year. In the fourth year, the charges are capped at Rs 2,000.
"While we are comfortable with the overall regulations, insurers are not comfortable with a cap on the charges in absolute terms," said SB Mathur, secretary general, Life Insurance Council.
"The insurers have already conveyed their concerns to the regulator."
A low charge will benefit the consumer, but industry players argue that this will lead individuals to exit from the policies when the market conditions are unfavourable. The regulator also notified disclosure norms for discontinued policies.