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Ref. No. KLI/22-23/E-BB/492
Term life insurance policy allows the insurer to switch their life insurance policy to another insurance company without ending their existing policy. Read to know how to transfer life insurance policies to another company in India.
When you are planning to opt for an insurance policy like the Unit Linked Insurance Plan (ULIP) in India, many questions and doubts may occur in your mind. First, you must be satisfied with the insurance policy or savings plan you will opt for and invest your hard-earned money into. This gives you a sense of security, and you can have peace of mind if you are satisfied and aware of the functionality, policy terms, and guidelines. However, one big question remains unanswered, and most potential policyholders keep seeking answers to it. The doubt that you can transfer life insurance policies to another company in India has troubled many investors over time, and still, most don’t find a concrete answer to it.
So, in this article, we will emphasise the answer to the question “can you transfer life insurance policies to another company in India?” and discuss the types of insurance that can be transferred to another company.
It is possible to transfer your life insurance policies to another company in India. However, some specific rules and regulations must be abided by to make such transfer possible. To transfer a life insurance policy to another company in India, a policyholder has to go through the process where the cash value of the current policy contract is transferred to another to make the transaction legal and qualified under the rules of law.
One can accomplish this by following the guidelines of Code 1035 of the Internal Revenue Code. This Code allows a tax-free transfer of monetary assets under the impression that the exchange of the financial asset is made under the rules and regulations of Code 1035.
However, as a caution, the policyholder should ensure that the exchange strictly abides by the rules and regulations of Code 1035; otherwise, complications related to taxable gains and other issues may occur.
There is only one way of transferring life insurance policies to another company in India without increasing taxation on the current amount. And this can only happen by following the procedure of the Code above 1035 of the Internal Revenue Code. Any other method will end up making your transfer count as a taxable gain, which might cause a heavy loss to your monetary asset.
The best way is to follow Code 1035, which allows you to transfer your insurance policy to another company like a property exchange. In this process, the insurance policy exchange takes place without the recognition of any profit/gain and thus makes you transfer a non-taxable event and the new policy replaces the old one.
Let’s look at the life insurance policies that are eligible for a transfer to another company under Code 1035 of the Internal Revenue Code.
- A life insurance policy in exchange for a life insurance policy
- A life insurance policy in exchange for an endowment policy
- A life insurance policy in exchange for an annuity policy
- A life insurance policy in exchange for long-term care qualified policy
The decision to transfer an insurance policy may be taken up for any reason. However, here are some of the main reasons why policyholders make a transfer to a new service provider.
Suppose a policyholder finds that the new company is providing a better interest rate than his current insurance provider. In that case, they will most likely opt for the higher return. So one of the leading causes for such transfers is market competition.
If a policyholder finds that other insurance service providers are offering better investment opportunities and have more features like more riders, more significant numbers of free fund switching in case of ULIPs, or other benefits, they may prefer switching to a new insurance provider.
Customer satisfaction remains one of the main reasons insurance providers lose their customers. Suppose a policyholder is not happy with the customer support and management. In that case, they are most likely to switch to a new company with a better market reputation.
Now that you have the answer to the question, can you transfer life insurance policies to another company in India, you must understand that making such a transfer needs the highest level of sincerity. There is no room for mistakes as they can lead to heavy monetary losses for you. You must ensure that the procedures of the transfer or exchange strictly abide by the rules of regulation. Therefore, making such a transfer in consultation with an expert is highly advisable. Also, you must know when not to transfer your insurance policy and all the issues that occur due to the transfer of your insurance policy to a new company.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
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Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
