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This is an archive article published on February 11, 2004

IRDA bars insurers to project over 10% return on investment

In A major clamp down on insurers promising high returns to lure consumers, the Insurance Regulatory & Development Authority (IRDA) has mand...

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In A major clamp down on insurers promising high returns to lure consumers, the Insurance Regulatory & Development Authority (IRDA) has mandated that companies cannot project more than 10 per cent return on investments in their policies. IRDA’s new code on standard practices, which would come into effect from April 1, prescribes that insurers can quote two views on rate of return — a lower rate of 6 per cent and a higher rate of 10 per cent, in their official illustrations to customers directly or through agents. The two rates would be set by the life insurance council under IRDA every year in April or even more frequently, depending on the returns given by various debt instruments in the country.

‘‘The initial rates to be used in projections are 6 and 10 per cent per annum. All insurers shall be free to use a lower illustrative rate than that is fixed, if so desired. However, under no circumstance, the higher rates than those set by the life insurance council shall be used,’’ IRDA said in its directive. Insurers also need to clearly specify if the policy offers ‘‘guaranteed’’ or ‘‘variable’’ returns. In case of variable returns, the two rates of return can be projected along with a statement specifying that they are not the upper or lower limits of what a policy holder might actually get back.

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