Don't buy life insurance before October

Have you received this message?

“Buy life insurance now. After October, the product may not be as beneficial.”

If yes, just ignore it.

With just a month to go before the new-look life traditional insurance products are launched on October 1, insurance agents have gone on an overdrive.

The reason: The new products will offer lower commissions to agents.

No wonder, there are a flurry of messages and calls to customers to buy before the deadline.

“After life products get re-filed, they will offer lower commissions to the agents and higher surrender value to the customer,” says Suresh Agarwal, executive vice-president and head -- distribution and strategic initiatives at Kotak Life Insurance.

. . .

The Insurance Regulatory Development Authority has asked all life and general insurers to re-file products in a way that business is protected and customers aren’t inconvenienced.

The deadline for re-filing both life and health products is October 1 this year.

In case of life insurance, lower commissions paid to the agent are definitely going to benefit the customer.

The commissions paid will depend on the tenure of the premium paying term of the policy.

For instance, if you have chosen a premium paying term of 10 years, the commissions charged will not exceed 30 per cent, respectively, says A S Narayanan, chief distribution officer at Bajaj Allianz Life Insurance.

. . .

Earlier, the commissions paid were higher for some insurers. Experts say, lower premium paid to agents will improve the returns generated from the product.

Re-filed life products will also uniformly have a sum assured that will be 10 times the premium paid.

This, in turn, means a higher sum assured, which will meet the tax deduction requirements.

Most traditional products will have to undergo the re-filing process, as most of the sum assured there was five to eight times the premium.

Since, traditional products have an average PPT of 10 to 15 years it makes sense to have a higher sum assured where the premium payable will be eligible for tax deduction.

. . .

Lastly, there will be the advantage of a higher surrender value.

“Option of surrendering the policy in the second year itself wasn’t there earlier.

This option will be available to policyholders if they wish to surrender the policy in the second year now,” says G N Agarwal, chief executive officer at Future Generali India Life Insurance.

Re-filing is essential at this point in time, because many life insurance products are more than a decade old, and do not comply with the new product design which should be in line with the needs of the customers.

The regulator’s key objective is to bring traditional products at par with unit-linked insurance plans in terms of charges.

Hence, taking these benefits into consideration, it makes sense for one to wait till October, especially if he is buying an investment-based product.

This is because the new clauses will make sure that more of his premium gets allocated to the savings portion improving the policy.