Insurance watchdog IRDA on Monday tightened the norms for ULIPs (Unit linked Insurance Products) after winning the battle with the markets regulator SEBI over control over ULIPs. Please find the brief summary of new guidelines which which has to be adhered by the Life Insurance Companies before September 1, 2010.
- The lock-in period for ULIPs from 3 to 5 years.
- All Top Up Premiums to have insurance cover.
- No partial withdrawals for ULIP Pension/Annuity products.
- ULIP pension products must be converted into an annuity.
- ULIP Pension/Annuity Products to offer guarantee of 4.5%/Year. This will protect the life time savings of pensioners from any adverse market fluctuations at the time of maturity.
- Loan upto 40% of NAV can be sanctioned.
- All limited premium Ulips, other than single premium products, shall have premium paying term of at least five years.
- ULIP charge structure evened out over tenure of product. Charges on Ulips are mandated to be evenly distributed during the lock-in period to ensure that high front-ending of expenses is eliminated.
- IRDA has also amended regulations to further tighten the code of conduct of corporate agents to ensure that a customer does not deal with any unlicensed person
For policies < 10 yrs, 3% p.a can be levied as charges
For policies > 10 yrs, 2.25% can be levied as charges
Impact of new Guidelines
- The step has made Ulips a long-term investment vehicle and will insurers increased time horizon for the investment.
- Commission and expenses have been reduced by evenly distributing it through out the lock-in period benefiting the customers as we can expect drastic reduction in allocation charges. Earlier upto 80% of the first year premium was deducted as upfront allocation charges.
- Compulsory life cover or a health cover to all Ulips, other than pension and annuity products, would enable us to get higher risk cover.
- Ulip pension or annuity products will offer a minimum guaranteed return of 4.5 per cent per annum or as specified by the IRDA from time to time will protect the life time savings of pensioners from any adverse market fluctuations at the time of maturity.
- This measure will reduce the expenses of the insurer, thereby lowering premiums to be paid by the policyholder.
- Small regular premium policies will become unviable as agents will not be interested to sell the policies due to lower absolute commissions.
- We can expect launch of e-policies from Insurance Companies which can be purchased directly on Internet with low Upfront charges like Bajaj Allianz I Gain, HDFC Standard Life Super Series, Aegon Religare I-Term Plan etc
