India is the second-largest insurance technology market in the APAC region, with a value of $3.66 billion. With such a large value, and the presence of a number of reputed insurance companies present in India, the need for a regulatory body is a must. In India, that regulatory body is the Insurance Regulatory and Development Authority of India or IRDAI. A life insurance policy such as a ULIP also comes under the ambit of the IRDAI. But what exactly is the IRDAI and what is their role in ULIPs? Read on to know more about them.
What is IRDAI?
IRDAI stands for the Insurance Regulatory and Development Authority of India. It was established in the year 2000. Initially, the government of India was the regulatory body of the insurance industry. However, a govt. appointed committee recommended the establishment of a single apex body to overlook the insurance industry. Its main objective is to create the rules and regulations that insurance companies, both national and international, need to abide by. Keeping in mind the huge number of policyholders, the IRDAI guides companies in regulating prices, promoting fair practices, and making the industry more efficient, along with other similar functions.
What are the objectives and roles of the IRDAI?
The following are the objectives of the IRDAI:
- Protect the interests of the policyholder
- Ensure fair practices among competitors in the industry
- Frame regulations that are fair for everyone
The roles of the IRDAI are:
- Helping with the growth of the insurance industry
- Maintaining a level-playing field among competitors
- Ensuring that concerns and claims of policyholders are settled fairly
- Rooting out corrupt practises within the industry
- Working towards a transparent industry
- Ensuring that the faith and trust of policyholders is respected
How does the IRDAI function?
As the apex body that governs the insurance industries and the players in it, the IRDAI is involved in many things. From issuing registration certificates, to setting rules and regulations, and from monitoring claim settlements to resolving disputes between companies or between clients and companies. The IRDAI also sets and regulates the pricing of insurance, which helps it in keeping it within the reach of the common man. The IRDAI can also cancel or suspend registration of an insurance company if it is found to be involved in malpractices. It also sets the training regimen and code of conduct for applicants who want to become insurance agents.
How is the IRDAI involved in ULIPs?
A ULIP or unit linked insurance plan is a type of life insurance policy which provides the policyholder the dual benefit of investment and insurance in the same policy. The premium paid for the policy is used for the purpose of investment and providing life cover. You have the choice of investing your money in equity fund or debt fund, or you can invest in both. The investments are based on your risk appetite and requirements. The life insurance cover ensures that your loved ones are protected from life risks. They receive a death benefit in the event of your untimely demise.
As the policy comes under the category of life insurance, it comes under the regulation of the IRDAI. It is believed that discontinuation charges that are levied on the policyholder after the premium payment is stopped, will not be deducted anymore from ULIPs. The main reasoning behind this is to stop people from surrendering their policies early on in the lock-in period itself.
If your policy is bought before 1st September 2010, the lock-in period will be of 5 years. If you fail to pay the premium after a grace period of 30 days, you will get a notice from your insurer to pay the premium within 15 days of the notice. There will be another extension of 30 days. Upon failure to pay, your policy will get discontinued.
There is a two-year window provided by the insurer to the policyholder during which you can revive your policy. If you manage to repay and revive the policy during this period, no charges will be applied. However, if you do not revive the policy within these 2 years or before the end of the lock-in period, the insurer will repay whatever corpus has been generated in your policy. The discontinuation charges will be deducted from the corpus before repayment.
This is the involvement of the IRDAI in ULIPs. If you wish to invest in ULIPs and want to know about the returns and premium, you can use the ULIP calculator from your preferred insurer’s website.
