LIFE INSURANCE: ENDOWMENT POLICY

 Policy Term: Premium Paying Term: Commission

It was previously stated how the changes in the IRDA regulation will affect bonus entitlements, and minimum death benefits with exclusions.


Definition once again

Endowment insurance plans are made to provide a sizable payout in the event of death along with, if necessary, survival, maturity, and profit sharing.

Policy term

Policy Term, during which the policyholder has to pay premiums to keep the contract valid. Under no circumstance can the Premium Paying Term be greater than the Policy Term.

Premium paying term

The time span during which the policyholder must continue paying premiums in order to maintain the contract's validity is known as the Premium Paying term. The insurance term is the same duration as the regular premium payment term. Yet, certain insurance contracts may allow the insured to select a premium payment schedule that is shorter than the policy's duration. The Insurance Term may not, under any circumstances, exceed the Premium Paying Term.

Regarding the Policy Term and the Premium Payment Period, the codification marks a significant departure from the prior regime. According to the revised Regulations:

  • A minimum policy term of five years is required.
  • All plans, excluding single premium policies, must have a minimum premium-paying duration of five years. Single premium insurance is the only exception, which is necessary to collect all premiums at once.

As long as the minimum Premium Paying Term (single premium policies are exceptions) is at least 5 years, there are no restrictions on the flexibility that can be offered in Limited Premium Paying Terms with regard to the Policy Term.

The presence of the regulation has a strong justification. Commissions on single-premium insurance policies cannot exceed 2%, according to the Insurance Act. It is obvious that this percentage is insufficient to catch the interest of distributors. A very high commission fee for insurance with recurring premiums is also permitted by the Act. The commission may be paid out at a higher rate even though some companies sold single premium plans that were conceptually perceived as non-single premiums. The Insurance Act was broken as a result.

The portion of the premiums to be used as commission was decided. Commissions had no obvious connection to any criteria prior to this. The recommended maximum rates were often followed. The IRDA has linked the commission rate to how long premiums are paid in accordance with the new legislation in order to promote the sale of longer-term plans. The commission will, as previously indicated, be a percentage of the premium paid; normally, the percentage is calculated as three times the term for which the premium is being paid; single premium policies are nevertheless subject to a 2% commission rate on premiums. The commissions paid in the upcoming years won't alter at all. Brokers and new insurance companies face slightly different conditions. Pension products have various rates, which we will examine separately.

Before making a purchase, every buyer should properly research any insurance policy and compare all insurance plans offered by various insurance firms.

“It's crucial to take into account how much cash you'll need for long-term objectives, insurance, and the living expenses for your family in the event of your death.”

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