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Rate of Returns Cut on Life Insurance Policy

Rate of Returns Cut on Life Insurance PolicyRate of Returns Cut on Life Insurance Policy

The Supreme Council of the Insurance Industry in a statement Monday required insurers to offer approximately 16% returns on life insurance policy and annuities with two-year contracts.  

The rate for policies for four-year policies is set at 16% for the first two years and 13% for the rest of the period, while for periods exceeding four years, insurers are allowed to offer only 10% returns, risknews.ir reported.

The statement did not specify when the new ceilings come into effect. Currently the legal ceiling is 18% for policies with duration of five years or less. The rate for policies covering 5-10 years is set at 18% for the first five years and 15% for the rest of the period. For periods exceeding 10 years, insurers are allowed to offer 10% returns. The decision comes after successive cuts in banks’ deposit rates, which has become a problem for insurers who were rely on bank interests to  pay life insurance returns.

The council also reduced the duration of contracts, which observers say makes sense given plans by the banking system  to cut rates in the future.  At the moment, life insurance accounts for about 12% of the insurance industry’s portfolio.

Financialtribune.com