The regulatory body is likely to increase the ULIP grace period and period after which a policy lapses.

The Insurance Regulatory and Development Authority (IRDA), the regulator of the insurance industry, plans to extend the time period for renewal of an insurance policy, a move that is likely to cheer customers of unit-linked insurance plans (ULIPs).

According to people close to the development, the regulator plans to increase both the grace period for a ULIP policy as well as the period before a policy lapses.

While the grace period, a timeframe within which policyholders can renew their policies without paying any fine, is likely to be extended to three months from present one month, IRDA may also allow policy renewal even after six months from the date when the premium was due, without being subjected to hefty penalty.

Currently, policyholders do not need to pay any fine if they deposit the premium amount within one month (grace period) of the due date. However, after a month from the due date, insurance companies start to charge a certain interest from policyholders. If the delay in paying the premium exceeds six months, insurance companies besides charging penalty also require a fitness certificate from the policyholder before it renews the policy. "Many policyholders either delay or let the policy lapse. The aim of the extending the period is to help these kind of policy so that they get enough time to renew their policy without having to pay a stiff penalty. This would also benefit insurance policies as it help lower policy lapses, a good thing for the industry," said a source.

Analysts are of the view that the move, if implemented, would be a win-win situation for both insurance companies as well as policyholders. "Policyholders will enjoy the insurance cover for the extended period. At the same time, it will make the job of an insurance product distributor easier as they may be able to convince policyholders to renew their policies within the extended period," said Rahul Agarwal, chief executive officer, Optima Insurance Brokers.