Now Reading: IRDAI proposes new rules for loan-linked insurance covers
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IRDAI proposes new rules for loan-linked insurance covers
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed new rules to give borrowers clearer choices when lenders bundle insurance cover with loans. The proposals, in a consultation paper released…
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed new rules to give borrowers clearer choices when lenders bundle insurance cover with loans. The proposals, in a consultation paper released on Wednesday, are part of a wider overhaul of insurance distribution that could pressure insurers and distributors to cut costs and commissions.
Under the proposed rules, lenders must disclose the interest rate with and without the insurance cover. Borrowers must be free to buy the insurance from any provider, not just the lender. The premium must be paid separately by the customer, not folded into the loan amount. IRDAI also said packaging health cover with home or motor loans should be discouraged as it is likely cost-inefficient for borrowers.
The proposals are under consultation and not final. IRDAI has invited comments from stakeholders before finalising the framework.
Indian Opinion Analysis
The IRDAI proposal targets a common practice where lenders bundle insurance to reduce their own credit risk, often at a cost the borrower does not see clearly. By requiring separate premium payment and rate disclosure, the regulator shifts the cost comparison onto the borrower. The rule also breaks the tied-selling model that keeps customers locked into the lender's insurance arm. The real test will be enforcement: lenders have long used bundled products to earn hidden commission, and the IRDAI will need to monitor compliance closely. The next step is the stakeholder consultation, after which the regulator will issue final guidelines.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
