RETAIL investors of unit-linked pension plans are set to enjoy the benefit of health cover with pension schemes as the insurance regulator plans to unveil a new set of rules giving more flexibility to insurers. The health cover will replace or complement the compulsory life cover that insurers are required to offer.
"We are planning to mandate companies to offer either a health cover or life cover or annuities with pension schemes. Insurers will have to mandatorily offer at least one of them," said a senior official. These companies will also have the flexibility to offer all the three benefits.
Health policies are insurance products. So the proposal could help Irda defend its position that Ulips are not pure investment schemes, said an insurance analyst. Irda and Sebi have been locked in a battle over who will regulate Ulips. These products are similar to mutual funds, with an insurance cover thrown in. "A person who is looking to save for his retirement may also want health benefits, given the rising costs of health care. The proposed move will also propel the growth of long-term health care," said IDBI Fortis managing director & CEO GV Nageswara Rao. Life companies have been hoping for a relaxation of the requirement of compulsory life cover on pension products. "Those who buy pension plans do so to cover the risk of living too long and forcing them to buy life insurance may defeat the goal of buying insurance," said a senior executive at a life company.
According to SB Mathur, chief executive of the Life Insurance Council, an umbrella body for insurers, the mortality charges will be relatively high for a person who is 50 years and above, making a pension plan with a mandatory life cover quite expensive. Earlier this month, Irda tightened rules on Ulips after a public spat with Sebi over regulation of the product. The rules, which come into force from July 1, make it mandatory for insurance companies to offer life cover on all Ulips, including pension products. This means companies cannot sell pension schemes without a life cover.
Irda's latest plan is to give more flexibility to insurers and allow them to bundle health covers with pension plans. India's insurance market is under-penetrated, with less than 15% of the population having a health cover in some form or other. The coverage of risk protection against major health-related expenditure is also low. The idea is to improve health insurance penetration, said an Irda official.
The rules also mandate insurers with pension schemes to convert the accumulated fund value into an annuity at maturity. The policyholder will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity.
