IRDAI requires life insurance companies to offer loans against policies

On Wednesday, the Insurance Regulatory and Development Authority of India (Irdai) required insurance companies to offer policy loans on all life insurance savings products, allowing policyholders to fulfill liquidity needs. The insurance regulator stated in its updated master circular for life insurance companies, set to take effect on September 30, 2024, that the provision for policy loans must be available in all life insurance savings products to help policyholders with liquidity needs.

The surrender value is the sum of money that a policyholder can take out from their life insurance policy whenever they want. Policyholders can receive a loan based on the surrender value that meets the eligibility criteria.

Nevertheless, the regulator clarified that loans will be prohibited in Unit Linked Insurance Products (Ulips).
Irdai stated that insurers must follow the decision of the Insurance Ombudsman within 30 days of receiving it to protect customers. If the insurance company fails to accept the ombudsman's decision, it will need to pay the complainant a penalty of Rs 5,000 daily.
Policyholders are also given the choice to make partial withdrawals from their pension products by the regulator. After three years from the policy start date, a portion can be withdrawn while the policy is in deferment.

Policyholders have the option to utilize this withdrawal to address particular financial requirements for significant life milestones such as children's higher education or marriage; acquiring or building a home or apartment; medical costs, and managing severe illnesses.

It was stated that withdrawals are limited to three times and should not exceed 25% of the total premiums paid as of the partial withdrawal date. The regulator views the circular as a crucial part of their reform efforts, with a focus on the policyholders' interests. In a statement released to the press, Irdai stated that an environment conducive to encouraging innovation and improving customer satisfaction is currently being provided.

Insurance companies can also offer products with different premium payment terms to assist consumers with their financial planning.
As per the circular, individual savings products must have a minimum policy term of five years, while group policies need to have a minimum term of one year.

Insurance companies can create products that provide various policy terms, including individual pure-risk products, group term products, group credit life products, and micro-insurance products, with a minimum policy term of one month.