LIC traditional plans get dearer, terms & conditions get restrictive

Mumbai: The country’s largest life insurer-Life Insurance Corporation of India (LIC) has raised premium rates and made a host of changes to its traditional participating life insurance plans.

According to industry sources, premium rates have been revised upwards by approximately 4-9 per cent on money back plans, endowment plans, whole life plans and children plans including LIC’s most popular policies such as Jeevan Anand, Jeevan Labh and Jeevan Lakshya.

The premium increase is higher in the older age bracket, the maximum entry age has been reduced to 50 years from 55-60 years earlier and the minimum sum assured or minimum life cover that you can buy has been raised to Rs 2 lakh from Rs 1 lakh. The revised plans come with lower Internal Rate of Return (IRR).

The products have been revamped after the Insurance Regulatory and Development Authority of India (IRDAI) asked life insurance companies to offer high special surrender value for traditional endowment policies from October 1, 2024.

Take for instance, a 30 year old male buying Jeevan Labh policy for a sum assured of Rs 10 lakh, policy term of 20 years would see a 6 per cent increase in annual premium (including GST) approximately at Rs 59,310 compared to Rs 56013 prior to October 1.

Similarly, keeping the policy term and sum assured the same, if the person chooses to buy Jeevan Anand, he would have to pay an approximate premium of Rs 61,844 (including GST) compared to Rs 59,407 had he bought the policy prior to October 1, an increase of 4 per cent. Mails and messages sent to LIC remain unanswered.

The public sector behemoth has also reduced commissions for its 14 lakh agents to 28 percent from 35 percent following the adjustment of surrender value criteria. It has also introduced a ClawBack Clause, which allows it to recover commissions it paid to agents if a policy lapses or is surrendered within a specified period.

While LIC chairperson Siddharth Mohanty during the second quarterly results press conference on November 8, maintained that LIC has no immediate plans to implement the clawback clause in the foreseeable future, LIC agents’ associations said that every new plan circular contains the clawback clause. Interestingly, several private insurers have already incorporated clawback clauses into their agent policies. 

Under the IRDAI’s Surrender Value norms effective October 1, insurance companies are now required to pay a special surrender value after policyholders have completed the full premium payment for the first year. This marks a shift from previous regulations, which provided no surrender value in the first year and began payments only after two years of premium payments. The IRDAI has also significantly reduced surrender charges on traditional savings plans. The regulator has said that, while determining the surrender value, insurers must also establish “reasonableness and value for money” for both existing and continuing policyholders. The norms also require that the discount rate for discounting the paid-up value to calculate the Special Surrender Value (SSV) can be up to 10-Year G-Sec yield plus 50 basis  points versus the 10-Year G-Sec yield in the earlier norms.