Life Insurance Corporation of India (LIC) continues to hold its strong posi...
Insurance regulator has released new guidelines for pension products offered by all the life insurance companies in India including LIC. According to the new circular life insurance companies will no longer have to guarantee a minimum return of 4.5% on pension products. However, pension plans will have a defined assured benefit that would be applicable on vesting, on surrender and on death. This assured benefit must be disclosed at the time of sale by the insurance company, said IRDA in its circular.
Pension products may be offered on individual or group unit-linked and non unit-linked pension products as well as on variable insurance pension products. Life insurers offering pension products can offer riders and insurance cover, but the sum of all rider premiums cannot exceed 15% of the premiums paid by policyholder for pension.
Insurers will need to disclose an illustrative target purchase price for each policyholder as per age, premium payment capacity, vesting age future expected conditions. Along with this, the insurer must also disclose the possible risks involved (if any). Every year, all life insurance companies will provide a disclosure to each policyholder indicating the current accumulated amount as well as the expected accumulated amount on vesting.
These guidelines will come into play from 1st December 2011 and will have a huge impact on the way pension products are structured and operated in India. Insurance companies were not happy with the guaranteed return clause of 4.5% and have been asking the regulator to scrap it. One of the main reasons was that offering a guaranteed return restricted the fund managers from investing in equities that can provide greater returns in the long term. It deterred insurance companies from selling pension plans, with the exception of LIC. From a customer’s point of view, 4.5% return was not a very attractive option.
A few months back, on the sidelines of the Insurance Summit, IRDA Chairman J Hari Narayan had said, “More than 90% of all pensions are with LIC which is too much of a risk to be allowed to continue.”
With the scrapping of the guaranteed return clause, private life insurance companies would be more inclined to sell pension products.
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