Published in LiveMint.
Addressing the operational constraints arising out of the country-wide lockdown and the market volatility due to COVID-19, the insurance regulator has allowed life insurers to offer settlement options in accordance with Regulation 25 of IRDA (linked insurance products) Regulation, 2013 for matured Ulips whose fund value is to be paid in lumpsum. Insurers can extend the option of staggered payments over a course of five years even for policies that don’t have the option of partial settlement.
Normally, on maturity of a unit-linked policy a lumpsum is paid. The 2013 regulation allowed insurers to pay the maturity value over a five-year period in installments. It was left to the insuerers’ discretion whether they want to include this feature in their policies or not.
“Ulips have a settlement option which says, up to a period of five years, insurers can make these payments in a partial manner. While some products have this feature, some don’t. Normally to make any changes in the terms and conditions, insurers have to get the regulator’s approval but now Irdai has allowed this for all Ulips products because fund value would have depletion due to the market crash,” said Anil PM, head – legal and compliance, Bajaj Allianz Life Insurance Co Ltd. This provision is applicable only for unit-linked policies maturing up to 31 May 2020. Insurers, however, have been asked to exercise all due care and diligence to explain clearly the possible risks of continued fluctuation of fund value based on daily net asset value (NAV) and clear consent has to be taken from the policyholder.
“The guidelines say that between maturity and settlement, there could be a gap of 5 years. But the policyholder has the right to withdraw anytime between maturity and settlement date without any charges,” said Abhishek Bondia, managing director and principal officer, This goes to say that if you’re not dealing with a liquidity crunch due to the ongoing lockdown, you may want to take the partial settlement option on the maturity value.
Bondia said this may not be a great move from the policyholders’ point of view because people whose policies are maturing, insurers could just pushback and say that payouts are deferred due to operational contraints. However, Bajaj’s Anil said this is only an option that insurers will have to extend but policyholders can withdraw the lumpsum too if required. “If policyholders want to continue and wait for the markets to improve to take the upside, then they can go for the partial settlement option over the next five years,” he said. “2013 regulation said payouts have to paid periodically so our interpretation is we’ll have to pay at least 20% each year.”