Life Insurance Corporation of India (LIC) continues to hold its strong posi...
Last November, the Insurance Regulatory and Development Authority (IRDA) had released new guidelines for pension plans scrapping the 4.5% guaranteed annual return clause. This move was welcome by the insurers as it meant more flexibility without having the burden of offering a guaranteed return. At the same time, the regulator said that the pension products should carry an ‘assured benefit’ which the insurers must disclose at the time of sale.
With effect from January 1, 2012, life insurance companies were asked to withdraw all pension products which did not meet the revised guidelines. In December 2011, the life insurers filed 21 revised pension products and also sought further clarification on the guidelines from IRDA. In response to the queries raised, the regulator said that the guidelines do not apply to Group Gratuity and Group Leave Encashment products. Further clarifications from IRDA on pension products:
Assured Benefit: The life insurer will guarantee either a non-zero rate of return or an absolute amount on the premiums paid from the date of payment till vesting. This should be disclosed to the customer at the time of taking the policy.
Death Benefit: In the event of death of the policyholder during the policy term, the nominee will receive an amount equal to all the premiums paid at the guaranteed rate of return disclosed at the time of sale.
Surrender Value for linked pension products: If the insurance plan is on the platform of a unit-linked insurance plan or ULIP, then the surrender value will be higher of fund value and premium accumulation at the guaranteed rate on the date of surrender minus discontinuance charges.
Also read - New guidelines for Pension Plans (Nov 2011)