The Insurance Regulatory and Development Authority (IRDA) has reduced the capital requirement for selling term plans. This has reduced the cost of premium by 40% on the term insurance.
Term insurance only has administrative and mortality charges, no investment component like ULIPs. Hence they are not exposed to market risk. It follows that the capital adequacy requirement for both these products cannot be same; the risk levels are totally different.
Fortunately the regulator realized this, came up with the regulation that should have come earlier. Better late than never…
Many private players have already started passing this benefit to their customers.
Most of the Indians do not have life insurance cover and those who have are mostly under-insured. The regulator’s step of decreasing the premium of term insurance will increase insurance penetration and enhance the growth opportunities of the insurance sector.
Another very important result: The reduction in the premiums will leave the investors with a surplus for investments.
