The Insurance Regulatory and Development Authority (Irda) said insurers could not replace life insurance policies unless in the interest of policyholders.
This was to protect the long-term interest of policyholders and to discourage intermediaries from persuading customers to surrender their policies and take up new ones, Irda said in the exposure draft on rules related to the replacement of life insurance policies released on Wednesday. Feedback on the draft can be given till July 20.
The guidelines said insurers should make full disclosure and give transparent information to the policyholder to avoid any possible misrepresentation of financial consequences of replacing a life insurance policy. Irda said these guidelines encouraged fair market conduct and fair business practices among life insurers and insurance intermediaries.
Replacement of a life insurance policy means an intermediary, agent or an insurer selling a new policy within six months of surrender of the earlier policy, entailing modification in the terms resulting in reduction of the benefit amount of the existing policy.
Irda said the priority of agents and insurers should be to keep the existing life insurance policy in force. In case of replacement of a life insurance/annuity policy, the agent or intermediary should obtain a written consent from the customer.
Insurers have also been asked to place an agreement in the proposal form, advising the customer not to surrender an existing contract for a new one. Irda asked insurers not to withhold any part of the surrender value payable to the policyholder towards the cost of a new policy.
A policyholder who is not properly guided by the existing life insurance company has the right to exercise the restoration of the existing policy within seven days from the receipt of the new one.
The policy that was replaced and restituted is entitled to all such benefits that is otherwise eligible had the policy been not replaced for taking a new policy. A policyholder who has exercised the restitution of the replaced policy is entitled to total refund of premiums, without any recoveries, on returning the new policy at his option.