Indias insurance regulator on Monday announced comprehensive changes in the rules governing the controversial, but popular unit-linked insurance plans, or Ulips. The new rules seek to make it less attractive for insurance agents to hard sell these hybrid instruments that offer a combination of insurance and equity investments to buyers.
The two most important changes made by the Insurance Regulatory and Development Authority, or Irda, are that insurers will have to spread the selling commissions they pay agents evenly over the lock-in period for a Ulip product and they will have to increase the lock-in period from three-five years. This will replace the current system of high upfront commissions that act as incentives to push Ulips into investor portfolios.
Irda mentioned in its circular that all regular premium Ulips shall have uniform/level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.
Since agents commission on single premium policies are capped at 2%, taking the incentive out of such top-heavy premium structures, the commission charges will be significantly lowered.
Furthermore, Irda has mandated insurers to provide a mortality or health cover on all Ulips and ordered companies to offer a minimum sum assured of 125% of single premium for policyholders buying Ulip below the age of 45 years. For entry above the age of 45 years, the minimum sum assured will be 110% of the single premium.
Irda said that all Ulip pension or annuity products shall offer a minimum guaranteed return of 4.5% per annum on the maturity date. This guaranteed return is applicable on the maturity date, for policies where all due premiums are paid. Also, Irda has said that the maximum loan amount that can be sanctioned under any Ulip policy shall not exceed 40% of the net asset value in those products where equity accounts for at least 60% of the total share and shall not exceed 50% of the net asset value of those products where debt instruments accounts for at least 60% of the total share.