The insurance regulator has come down heavily on players accepting premium payments months and years in advance of the due date on life insurance policies.
As per the draft circular sent to the CEOs of life insurance companies by the Insurance Regulatory and Development Authority (Irda), insurers can now accept premia only 15 days before the renewal date from those paying monthly and only 30 days before the due date in the case of non-monthly payments.
Currently, a policyholder can make a lump sum payment of premium before the due date and even avail a nominal interest or some discount on it.
Life Insurance Corporation of India, the country’s largest insurer, in fact, allows premium payments five years in advance, for traditional policies.
Irda has asked insurers to refund the advance premium collected by them and not adjusted with the due dates so far to the policyholders within seven days of the date of this circular.
“The objective is to curb mis-selling by the intermediaries, asking policyholders to pay more premiums for a nominal interest or discount given by the insurers,” said the circular, a copy of which is with DNA Money.
The regulator will issue the final guidelines soon, based on the feedback received.
The industry appears to be a divided house on the issue.
“This kind of an arrangement will be inconvenient for policyholders who are going out of station. Advance premium collection always prevents the possibility of a policy lapsing,” said G N Agarwal, chief actuary, Future Generali Life Insurance.
P Nandagopal, managing director & CEO, India First Life Insurance, couldn’t agree more.
“Customers should be given an option to pay the premium in advance, even beyond 30 days, with insurers paying some amount of interest to them. Otherwise, it may become difficult or inconvenient for the customers to pay the premium exactly 30 days prior to the due date,” he said.
However, Suresh Agarwal, executive vice-president, head -distribution -individual business & strategic initiatives, Kotak Life Insurance, hailed the move. “This is a step in the right direction, which allows policyholders to resort to regular payment of premiums. The excess amount can always be invested in alternative avenues.”
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