IRDAI New Circular: 11 Key Changes in Life Insurance Policies Effective from October 1, 2024

IRDAI New Circular – The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a new circular that outlines significant reforms in the life insurance sector, with changes targeting life insurance companies, health insurance companies, general insurance companies, insurance advisors, and their customers. These changes are expected to impact more than 25 lakh insurance advisors in India, who will need to adjust to these updates and inform their clients accordingly. The reforms are part of IRDAI ongoing efforts to create a more customer-centric insurance landscape, ensuring that policies and procedures align more closely with the needs and interests of policyholders.

This article will explore the 11 key changes outlined in the circular, focusing on how these updates will affect life insurance policies and their implications for insurance advisors and customers alike.

1. Life Insurance Companies Must Offer Diverse Products to Suit Various Customer Needs

IRDAI has mandated that life insurance companies must offer a broad range of products catering to different demographics, regions, age groups, and income levels. This means that insurers will now have to design policies based on specific customer requirements, including their geographical location, age, income group, and even health status.

Also see: IRDAI 19 New Guidelines for Health Insurance

Previously, life insurance companies often offered standard products that didn’t necessarily fit individual customer needs. However, with this new change, companies are required to tailor policies to the exact specifications of different customer segments. This will likely lead to an increase in the number of customized riders, ensuring that customers can select coverage that suits their specific situations. This update puts pressure on insurance companies to innovate and create products that meet a broader array of requirements, potentially leading to a more personalized approach to life insurance.

2. Policies Can Be Purchased Directly Through Online and Offline Platforms

Another significant change is that life insurance policies can now be purchased directly from insurers or through authorized agents, brokers, or online platforms. Customers can verify the authenticity of sellers via insurance company websites. This transparency is aimed at making it easier for customers to purchase policies through their preferred method.

While this change simplifies the purchasing process for customers, it may pose challenges for insurance advisors. Advisors traditionally rely on face-to-face interactions for sales, which is a key component of their income. By offering policies directly online, insurance companies provide customers with the ability to bypass agents, which could impact the livelihood of insurance advisors. However, IRDAI focus remains on offering more customer-friendly and convenient methods for buying insurance.

3. Loan-related Policies Are Not Mandatory to Be Purchased from the Lender

IRDAI third major update is that insurance is no longer required to be purchased from the lender offering a loan, such as a home loan. This ensures that customers are free to select any insurance company or policy that suits them, without being pressured into purchasing from a specific provider.

This is particularly important in cases where private insurance companies were known to bundle insurance products with loans, making it difficult for customers to choose a different insurance provider. This update not only increases transparency but also allows customers to make more informed decisions based on their needs rather than being influenced by lenders.

4. Customized Benefit Illustration Must Be Provided

Life insurance companies are now required to provide a customized benefit illustration to customers, detailing the specific benefits and conditions of the policy. This document must be signed by both the customer and the salesperson, ensuring that both parties are fully aware of the policy’s terms.

This change addresses one of the major complaints in the industry—often, customers would receive generic quotations from third-party sources, which sometimes led to confusion or disputes later on. By requiring insurance companies to provide this information directly, the responsibility for ensuring accurate information shifts to the insurer, which enhances accountability. Additionally, insurance advisors can now confidently present customized benefit illustrations generated directly from the company’s portal.

5. Premium to Be Paid Only After Proposal Is Accepted

A significant change relates to the payment of premiums. Customers are now required to pay the premium only after the insurer has accepted their proposal. This contrasts with the previous practice where premiums were often collected upfront, even before the policy was approved.

This reform is critical for preventing situations where customers would pay a premium, only to face delays in receiving coverage. IRDAI directive ensures that the customer’s premium is collected only when the insurer is ready to provide coverage, reducing the risk of customers being left in limbo while their policy is still under review. This change will also reduce disputes around claims that arise from such delays.

6. Nominee Must Be Named at the Time of Policy Purchase

In a move aimed at simplifying the claims process, IRDAI has made it mandatory for customers to name a nominee at the time of purchasing the policy. This ensures that claims are paid to the correct person in the event of the policyholder’s death.

Previously, disputes often arose if both the policyholder and the nominee passed away, leading to confusion about who should receive the claim. By requiring a named nominee from the outset, this rule reduces ambiguity and helps families receive benefits in a timely manner.

7. Issuance of Policies Electronically Within 15 Days

Once a proposal is accepted, insurers must issue the policy electronically within 15 days. If a physical copy is requested, the insurance company must provide that as well.

This change speeds up the process of policy issuance, ensuring that customers receive their documents in a timely manner. It also introduces more flexibility by allowing customers to choose between electronic and physical copies. This is particularly important in rural areas or for older policyholders who may not be as digitally savvy. IRDAI has recognized the need to cater to all types of customers by offering both formats.

8. Customer Information Sheet to Be Provided with Policy Documents

IRDAI has introduced the requirement for a Customer Information Sheet (CIS) to be provided along with the policy document. This sheet summarizes the key features, exclusions, and claim procedures, offering a concise guide to the customer.

This new feature will help policyholders better understand their policy’s terms without needing to sift through dense legal language. The CIS is expected to reduce confusion and disputes over policy benefits, as customers will have a clear reference outlining the essential details of their coverage.

9. Claims to Be Settled Quickly, With Interest in Case of Delays

A critical change is the speed at which claims, especially death claims, must be processed. According to IRDAI, claims should be settled within 15 days of receiving all the required documents. If there is a delay, the insurer must pay interest to the policyholder’s beneficiaries.

This reform is aimed at alleviating one of the most common frustrations for policyholders and their families—the long wait times for claim settlement. Especially in the case of death claims, the financial needs of the family are often immediate, and any delay can cause significant hardship. By introducing penalties for delays, IRDAI ensures that insurers process claims promptly.

10. Customers Can File Complaints Through IRDAI Bima Bharosa Platform

If customers are dissatisfied with their policy or claims process, they can now file complaints directly through the IRDAI Bima Bharosa Platform. Complaints must be resolved within 14 days, ensuring swift resolutions.

This platform provides an easy-to-access grievance redressal system for customers who might feel wronged by their insurer. It holds insurance companies accountable for addressing customer complaints and introduces a defined timeframe for resolving issues.

11. Unresolved Complaints Can Be Escalated to the Insurance Ombudsman

Finally, if a complaint remains unresolved, customers can escalate the issue to the Insurance Ombudsman, who handles disputes up to ₹50 lakhs. This offers an additional layer of protection for policyholders, ensuring that their grievances are heard and resolved fairly.

The Ombudsman process is crucial for settling larger claims or more complex disputes that the Bima Bharosa platform cannot address. It offers customers a fair and unbiased route for settling disputes, further enhancing transparency and accountability within the insurance sector.

Conclusion

IRDAI circular introduces several groundbreaking changes that aim to create a more customer-centric life insurance industry. These reforms will affect both insurance advisors and policyholders, requiring companies to offer more personalized products, streamline processes, and ensure that claims and complaints are handled efficiently. As the industry adjusts to these new regulations, customers will benefit from more transparency, flexibility, and faster service. Insurance advisors, while facing some challenges, can leverage these changes to build stronger relationships with clients by providing more tailored solutions and better service. The IRDAI new circular marks a significant shift towards a more equitable and customer-friendly insurance market in India.

Also see:

• IRDAI new guidelines for LIC
• LIC Sales Saathi App Details
• How to become MDRT in LIC
• Which LIC plans are closing
• 14 New IRDAI Guidelines for General Insurance

FAQs about 11 changes outlined in the IRDAI New Circular:

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or professional advice. The content is based on a recent IRDAI circular and changes expected from October 1, 2024. Readers are encouraged to consult with licensed insurance professionals or directly contact insurance companies for personalized advice and to ensure compliance with updated regulations.