"All private life insurers have now asked IRDA to remove this stipulation because it affects our operations," says Max New York Life Insurance CEO and managing director Tony Singh.

"This stipulation forces companies away from designing or selling protection products," says an actuary with a life insurer. "A person will not be able to buy a term assurance policy for Rs 5 lakh with a critical illness rider for a similar amount because the premium for rider benefits is very close to that of the basic policy."

A company will be in a similar position, as in above, when it comes to group-term products, he says. To sidestep the stipulation, life insurers can sell riders as part of the basic product, or increase the term insurance premium and reduce the rider premium. This will expose themselves to financial risks or just no-sell, pure-death benefit products (individual or group), and sell just endowment policies.

He says if the regulator does not want the companies to sell policies with a very small basic death benefit and huge rider benefits, there are better ways to do that. "IRDA can put a percentage cap on the rider benefit premium at the companys total premium income or cap the rider sum assured in relation to basic benefit."