Purchase of investment and endowment life insurance policies to be preceded by testing
Testing will help people assess whether the terms of life insurance contracts with an investment component are clear to them and meet their expectations. It will also contribute to reducing the misseling phenomenon when investment or endowment life insurance (ILI or ELI) policies are essentially sold as other financial products, for example as deposits.
The draft law on testing was adopted by the State Duma in the second reading.
The insurer will be able not to conduct testing in three cases:
1) the buyer has the status of a qualified investor, which means the buyer is aware of the risks and specifics of complex financial instruments;
2) the buyer pays a large insurance premium (not less than ₽1.4 million, exceeding the deposit insurance limit) and in this case is eager to know as much as possible about the contract terms;
3) the contract terms guarantee that the buyer will receive at least 95% of the deposited funds at any time upon early termination of the contract and the buyer will not suffer any losses when missing up to three regular instalments within six months but making them up within this period later. Additional customer protection mechanisms are provided in this situation. After concluding an ILI or ELI contract, the insurer must remind policyholders that this is not a deposit and they can request a refund during a cooling-off period. If they fail to make the next instalment payment, the insurer must remind them of the consequences of missing it.
The testing procedure and the list of questions will be specified in the Basic Standard for Insurance Customer Protection.
The law is anticipated to become effective on 1 October 2024.
A similar self-regulation mechanism has been used since October 2021 in the securities market for transactions with complex instruments.