To All Life Insurance Companies
Guidelines on IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010
Many representations have been made by the insurers to allow a higher revival period to enable the policyholder to revive at a later stage and requests were also made to allow the insurer to levy fund management charge for managing the discontinued linked fund.
In consultation with the industry, the Authority, in exercise of powers vested under Regulation 11 of IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010, the following guidelines/clarifications are issued. These guidelines/clarifications shall be effective from 1st November, 2011.
For the purpose of the said Regulation:
1. Regulation 2 (1) (vii) shall be read as:
“Discontinued Policy Fund” means the segregated fund of the insurer that is set aside and is constituted by the fund value of all discontinued policies determined in accordance with these regulations.
Provided that such discontinued policy fund shall be invested as per the pattern filed and approved by the Authority under the File and Use Procedure.
2. Regulation 6.(1) shall be read as:
Where the policyholder exercises the options available at sub-regulation (ii) of Regulation 4 or does not exercise the option available in terms of the proviso to sub-regulation (i) of regulation 5, the fund value of the policy shall be credited to the discontinued policy fund. The proceeds of the discontinued policy shall be refunded only upon completion of the lock in period. The income earned on the fund value shall also be apportioned to the discontinued policy fund and shall not be made available to the shareholders.
Provided that the policyholder shall have the right to revive such policy within two yearsfrom the date of discontinuance and not later than the expiry of lock in period.
Provided further that in case the insured opted to revive the policy within such two years,the insurer shall add back the discontinuance charges deducted from the fund to the fund value and allot units of the segregated fund chosen by the policyholder at the NAV as on the date of such revival.
3. Regulation 6. (2) Explanation shall be read as:
“Proceeds of the discontinued policies” means the fund value as on the date the policy has discontinued, after addition of the entire income earned and after deduction of the fund management charges as provided in these regulations, subject to a minimum guarantee of the interest, as applicable to savings bank accounts of State Bank of India.
4. Regulation 7 (vi) shall be inserted as:
To ensure that the fund management charge levied shall not exceed 50 bps per annum on the discontinuance fund, after ensuring a guaranteed return specified in sub regulation 6.
5. Regulation 7 last but one paragraph shall be read as:
“Provided that where a policy is discontinued, only discontinuance charge and fund management charge as prescribed in sub regulation 7 (vi) may be levied by the insurer, and no other charges by whatsoever name called shall be levied.
(J. Hari Narayan)