On 12th April, LIC issued circular to all its offices stating that the advance payment of premiums facility is withdrawn. While IRDA may have good intentions for it, there will be many customers who will get adversely impacted. Did IRDA consider genuine difficulties that will arise?
The Insurance Regulatory and Development Authority (IRDA) has banned life insurance companies from accepting premium under linked as well as non-linked products for more than 30 days in advance to prevent money laundering. Life Insurance Corporation of India (LIC), in a circular dated 12 April 2013, states that the premium due may be accepted 30 days before the due date of payment of premium. In case you have opted for monthly premium payment mode, you will now be allowed to pay only three months’ premium in advance on the date of commencement of the policy.
According to Mr. Prashant Tripathy, chief financial officer, Max Life Insurance, “At Max Life Insurance we have some specific steps in place to ensure that we do not hold on to customer money, paid in advance. As per our current process, we refund advance premium if it is paid three months in advance (for all modes). We are conceptually aligned to the recommendation of not accepting advance premium. The time-frame of one month for yearly premium modes and three premiums in advance for policies with monthly mode premium payment options is also apt.” But, it means not all companies have implemented the 30-day rule yet, even if they agree to it. If the 30 day rule was really good then all insurance companies would have jumped for it.
Until now, a policyholder could make a lump-sum payment of premium before the due date and even get a nominal discount on it. IRDA may have reasons like preventing mis-selling to come up with this rule as agents may be enticing policyholders to avail the premium discount by paying premiums in advance. In fact, LIC, for its traditional policies, allows premium payments five years in advance. IRDA may want to promote a regular savings habit.
While IRDA’s intentions may be genuine, the move will adversely impact several groups of policyholders. It is unclear if IRDA has given a thought to the problems that can arise. The change may even be termed as anti-consumer by many policyholders and agents based on the grievances that can arise. IRDA should have allowed three to six months of advance premium payment without any discount. Here’s why.
Some of the issues that will soon come up:
Mr Tripathy, says, “This we understand is a concern but customers while filing I-T returns can ask for a refund for any excess tax paid.” Asking for refund for any excess tax paid is tedious process that will arise if companies stick to 31st January deadline for 80C proof and the employee cannot give it as renewal is due in March.
In order to facilitate availability of tax rebate at source, it has been decided to allow acceptance of premium up to six months in advance and the premium receipt is issued across the counter. However, no discount would be allowed on such advance premium payment and the advance payment option shall be allowed only within the same financial year.”
It is clear that the defence personnel will face issues now that premiums will be accepted only 30 days in advance of the due date. Allowing premium payment up to six months in advance with no discount was put by LIC for a specific purpose.
• Many policies have small amount of annual premium (less than Rs1,000). It is just easy to make future premium payments and forget about it rather than to remember such small commitments. Can IRDA help these customers?