New Insurance Regulations Effective April 1, 2024: Demat E-Insurance Account Mandatory and Revised Surrender Charges

Beginning April 1, 2024, insurance policyholders can expect two noteworthy changes that will affect them directly. The first change requires all new policyholders to transition to e-insurance policies, while the second involves adjustments to surrender charges for life insurance plans, specifically endowment policies. Here’s a breakdown of what these changes entail and what policyholders should be aware of:

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Mandatory e-Insurance Policies for New Policyholders

Effective April 1, 2024, it will be obligatory for insurance policies to be held in electronic format, akin to how investors manage shares in a demat account. This move aims to streamline processes and enhance accessibility while minimizing paperwork. Policyholders will be required to purchase electronic insurance policies stored in a demat account known as an e-Insurance Account (eIA). Opening an e-Insurance Account can be done through any of the four repositories: CAMS Insurance Repository, Karvy, NSDL Database Management (NDML), and Central Insurance Repository of India.

Emphasizing the positive impact of this development, Shashank Chaphekar, Chief Distribution Officer at Manipal Cigna Health Insurance, highlights its potential to enhance customer experience and streamline policy management in the digital age.

The transition to e-insurance is expected to offer several benefits, including the consolidation of all insurance policies (life, health, and general) in one accessible platform. Moreover, policyholders can conveniently view, maintain, and update policy details through their e-Insurance Account. Notably, the process of opening an e-Insurance Account is straightforward and free, with insurers bearing the associated costs on behalf of policyholders.

Chaphekar also mentions, “This move is a big win for customers, making their lives easier in today’s digital world. Having all your insurance policies in one place not only simplifies things but also ensures better security and accessibility. It’s a significant step forward in serving our customers better.”

While this mandate aims to streamline operations and enhance customer experience, policyholders still retain the option to receive physical policy documents if desired. However, it’s essential to note that this rule applies exclusively to new insurance policies, with no specific directives outlined for existing policyholders by the Insurance Regulatory and Development Authority of India (IRDAI) guidelines.

Revised Surrender Charges for Life Insurance Policies

In addition to the e-Insurance mandate, policyholders must also be aware of the revised surrender charges set to take effect from April 1, 2024, specifically applicable to traditional endowment policies. The Insurance Regulatory and Development Authority of India has announced the final set of surrender charges for both non-linked and linked life insurance products.

The proposed surrender value percentages are structured as follows:

(1.)  30% of total premiums paid if surrendered during the second year.

(2.)  35% of total premiums paid if surrendered during the third year.

(3.)  50% of total premiums paid if surrendered between the fourth and seventh years.

(4.)  90% of total premiums paid if surrendered during the last two years.

Emkay Global explains that the decision to maintain the current state of affairs comes as a big relief to life insurers. Without this decision, they would have found themselves in a tough spot, trying to navigate the complexities of increased surrender values. This would have involved adjusting distributor payouts, ensuring that loyal policyholders still receive benefits, and, importantly, keeping shareholders’ profitability intact, especially concerning the Value of New Business (VNB) margins.

Abhishek Kumar, a SEBI registered investment advisor (RIA) and Founder of SahajMoney shares insights into the recent decision by IRDAI regarding surrender values for life insurance policies. Despite earlier anticipation stirred by a consultation paper in December 2023 proposing an increase in surrender values, the recent Gazette Notification issued in March 2024 has upheld the existing norms. This means that policyholders may still receive relatively modest surrender values, particularly during the initial years if they choose to surrender their policies.

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