IRDAI Credit Card: In a recent order, IRDAI has asked all life insurance companies to immediately stop the use of credit cards to repay loans taken by mortgaging insurance policies.
IRDAI Credit Card: Insurance companies have welcomed the directive of insurance regulator IRDA to ban the use of credit cards for repaying outstanding loans, saying that it will prevent policyholders from falling into the debt trap. In a recent order, the Insurance Regulatory and Development Authority of India (IRDAI) has asked all life insurance companies to immediately stop the use of credit cards to repay loans taken by pledging insurance policies.
Policy holders will benefit
On this direction the insurance companies have said that it was not in the interest of the customer to repay the loan by borrowing on the credit card and paying very high interest rates on the outstanding amount on the card. Experts are of the opinion that financial discipline is of paramount importance and repayment of loan through credit card should be avoided. This is because in case of default or partial payment, the card issuing companies will have to pay higher interest rates.
Sunil Sharma, President, Chief Actuary and Chief Risk Officer, Kotak Mahindra Life Insurance, said that this is a good move by the insurance regulator as it protects the interests of the policyholders. “The interest rates on loan against the policy are much lower than that of an unsecured personal loan, so it would not make financial sense for customers to use credit cards to repay the policy loan,” he said.
Risk of getting trapped in credit crunch
According to Kapil Mehta, co-founder of SecureNow, the regulator feels that credit card insurance loan borrowers fall into a debt trap. “Most insurance loans have an interest rate of eight to 15 per cent, while credit card interest rates can be above 20 per cent,” he said. Kamlesh Rao, managing director and chief executive officer of Aditya Birla Sun Life Insurance, said this The mandate helps ensure the best interests of policyholders and supports responsible financial planning. Rao said, “Policyholders are advised to repay their loan from the accumulated funds instead of using credit cards.”
