Holders of unit-linked policies who discontinue their policies mid-way shall get a minimum guaranteed interest at par with SBI savings bank account rates, regulator IRDA said.
Changing the rules, the Insurance Regulatory and Development Authority (IRDA) also asked the life insurers that the policyholders unit-linked insurance products (Ulips) should be allowed to revive their cover within two years of stoppage of premium payment, but not later than the expiry of lock-in period.
Elaborating on the interest rates to be paid on the discontinued policies, the IRDA circular said that proceeds of such policies means “… subject to a minimum guarantee of interest as applicable to savings bank account of the State Bank of India”.
Further, the policyholders would be duly compensated for the discontinuation charges in case the policies are revived. The compensation would be on the basis of the Net Asset Value (NAV) of the units of a common fund which is created out of the discontinuation charges and premium paid.
The regulator has also asked the insurance companies that the segregated fund relating the discontinued policies shall be invested in a pattern to be approved by IRDA. When a policy is stopped mid-way, the insurers will be able to levy only discontinuance and fund management charges.
“No other charges, by whatsoever name, shall be levied,” the IRDA said.