Endowment Policy - Policy Term: Premium Paying Term: Commission

Life Insurance

Definition

Plans for endowment insurance are designed to offer a sizable payout in the event of death as well as, if necessary, survival, and maturity, and can be profit sharing or non-profit sharing.

Policy term

The Policy Term is the period for which the Insurance Company is at risk and signifies the existence of a valid policy contract.

Premium paying term

The Premium Paying Period is the period of time during which the policyholder must continue to make premium payments to keep the contract in force. The length of the insurance term matches the typical premium payment period. The insured may, however, be able to choose a premium payment schedule that is shorter than the policy term under some insurance arrangements. The period of the policy shall not exceed the term of the policy. Under no circumstances may the Insurance Term 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 regulation is in place for a good reason. The Insurance Act forbids commissions on single-premium insurance policies to be higher than 2%. It is clear that this percentage is insufficient to catch the interest of distributors. Additionally, for insurance with recurring premiums, the Act enables a substantially larger commission rate. Although certain businesses sold single premium plans that were theoretically considered to be non-single premiums, a higher rate of the commission may be paid out. As a result, the Insurance Act was breached.

It was decided how much of the premiums were to be used as commission. Before this point, commissions weren't associated with any clear criteria. Most of the time, the suggested maximum rates were adhered to. To encourage the sale of longer-term plans, the IRDA has tied the commission rate to the length of time that premiums are paid in compliance with the new laws. As previously stated, the commission will be a percentage of the premium paid; typically, the proportion is determined as three times the term for which the premium is being paid; single premium policies are still subject to a 2% commission rate on premiums. There won't be any changes to the commissions paid in the upcoming years. Conditions for brokers and new insurance enterprises range slightly from one another. There are different rates for pension products and we shall consider them separately.

Every consumer should thoroughly investigate any insurance policy and contrast all insurance plans provided by different insurance companies before making a purchasing decision. 

“It's not just about how much insurance you need; it's about how much your family will need to survive without you and how much you'll need to achieve your long-term goals.”

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