IRDA proposed mandatory life cover with pension products

As the row over investment-cum-insurance product came to an end, life insurers got another big relief on pension plans, which now would come with minimum guarantee. Recently, the Insurance Regulatory and Development Authority (IRDA) had proposed a mandatory life cover with pension products, which had created an uproar in the industry.

“Pension is about saving for retirement, thus making annuitisation compulsory is a step in the right direction. Without this, there was no difference between Ulips and pension plans,” said Kamesh Goyal, managing director and CEO, Bajaj Allianz Life Insurance.

After the current ruling on Unit-linked insurance plans (Ulips), it is clear that an insurance contract offering one out of the three – life insurance cover, health insurance cover or annuitisation on human life – is sufficient to categorise it as a life insurance product.

However, actuaries say that writing a pension plan with guarantee will not be easy. “It is extremely difficult to manage long-term guarantee as there are not many assets. Guarantee also comes with cost and the product will become costlier,” said an actuary of a life insurance company.

“It has been clarified that pension products need not compulsorily offer life insurance cover or health insurance cover as was required earlier. Now an insurance contract offering one out of three — life insurance cover, health insurance cover or annuitisation on human life is sufficient to categorise it as a life insurance product,” said Deepak Sood, MD & CEO, Future Generali India Life Insurance.

The long awaited clarity in the regulatory framework came to an end. Insurers said that the uncertainty had led to delay in people investing in insurance products.

“It will be difficult to offer guarantee in accumulation phase. If it is made compulsory on unit-linked pension plans, there will be very few funds offering this product. Most of the companies offer guarantee at annuity,” said another actuary.

IRDA had come up with new guidelines on Ulips. The regulator has banned partial withdrawal during the term of the policy. Also, the regulator said that once the policy term was over, one-third of the maturity value could be withdrawn, while the rest be used to purchase an annuity. At the same time, the policy is locked for the entire term.

Insurers were afraid of the implication of bundling the two products. They anticipated a sharp fall in income from the sales of these products.

After a lull of over two months, life insurance companies are back to the drawing board planning new Ulips.