Insurers told to Provide User’s Guide

In a move to curb mis-selling of unit-linked insurance plans (Ulips), regulator IRDA has directed life firms to attach a ‘key features’document with every policy to help customers understand what they are buying. There will be a new provision in the `Regulations for Protection of Policyholders Interests’ to make this mandatory for insurance companies.

Until now, the only explanatory document that a policyholder received in addition to the policy was a benefit illustration that showed the returns a policyholder could expect on maturity.

The details in the proposed document will spell out the type of the policy, minimum surrender value, list of complaint centres, benefits of the policy as well as benefits not payable, among others.

According to IRDA, the proposed document would clearly bring out the risks involved for the policyholder and the obligations or commitments required of him/her. There have been several complaints of unscrupulous agents selling regular premium policies (where commissions are higher) positioning them as single-premium plans.

“A key feature document should not be too long as to lose the precision nor should it be too short thereby missing out on key facts. The document should avoid jargon, should be easy to read and most of all be attractive for the consumer to peruse. It should be titled prominently and should use easy-to-understand language,” said an IRDA communiqué to all life insurance firms.

Currently, to understand the features of the policy, buyers go through the life insurance policy—a contract document that is filled with legalese. In many countries, particularly in the UK, regulators are pushing insurers to rewrite policy documents in an easy-to-understand language. Irda has told insurers that present policies are complex and, therefore, not comprehensible to the insured. “It is observed that insurance policy documents are long and run into several pages, making it almost impossible for policyholders to read them. Contractual documents developed by insurance companies should take care of the interests of policyholders by giving them the required information in a clear and simple manner,” the circular said.

The need to introduce a key-features document was felt because even the literate population was unlikely to understand complex legal language in the policies. To ensure that insurance companies do not work around these regulations and issue the key-features document in fine print, IRDA has also prescribed the minimum font size for the document and provided a model document.