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Sunday, Aug 04, 2002

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Breathing time to review your policy

Anand Ram

EVER bought a policy you wished you had never picked in the first place? Worry no more. For, the Insurance Regulatory and Development Authority (IRDA) now has in place a safety measure to protect buyers from the age-old practice of being lured into something that he or she does not want.

In an attempt to contain unethical selling practices that could leave you committed to a stream of payments, and to give you a second chance to get out of a policy you have erroneously purchased, IRDA has put out a regulation that requires all insurance companies to offer a `buy it or leave it' clause — valid for 15 days immediately after the sale.

The new regulation has been given shape after analyses showed a significant magnitude of lapses on policies offered by LIC.

For various reasons (including their inability to continue payments), people have summarily defaulted on their premium contributions, resulting in lapsed policies.

The new regulation is to stem this tide of policy lapses and act as a cushion against hasty selection of policies by consumers.

Besides, there is also a chance that an over-enthusiastic or an unscrupulous agent may have (in) advertently pushed you into buying the policy to maximise his own commissions.

The 15-day period will give policy-holders a second chance to exit the policy if necessary.

Evening the score

The new regulation offers a mixed bag to both insurers and policy-holders alike.

Policy-holders have a second chance to opt out of the product in the next 15 days after purchase. However, since the insurance company nevertheless assumes the risk of policy-holders' demise during this period, a proportional premium for this risk is charged.

Therefore, even if you decide against a policy after buying it, you will still have to cough up a premium proportionate to the number of days you have held the policy besides medical examination and stamp duty charges.

In unit-linked policies, the regulation states that the company should re-purchase the policy at current unit prices. Therefore, you could also take a knock if the net asset value of the units may have deteriorated during this period.

On the other hand, the insurance company gains to the extent that it has collected the premium from you in the holding period. However, insurers also have to bear the costs of processing the paperwork for the issuance of a policy, which you may choose not to hold. Further, logic would also suggest that insurers might not actually invest the premium (or at least in long-term equities) during the initial 15 days after the policy sale, as they may have to foreclose their investments if you choose to return the policy.

Why 15 days? Policy-holders are entitled to the right of going through the fine print at their own pace before accepting a policy. This regulation has been introduced on the premise that a policy-holder may become wiser through the passage of time — at least in the next 15 days. Take your time clearing your doubts and making sure that the insurance cover you opt is what you want before confirming your choice.

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