Insurance sector regulator IRDA on Monday came out with a set of guidelines directing life insurers to offer unit-linked insurance plans (Ulips) at lower cost to buyers, while also providing higher life cover, though with a longer lock-in period. While life insurance customers will benefit, the new rules could lead to a substantial cut in commission for insurance agents and force life insurance companies to drastically cut costs, leading to lower sales.

IRDA on Monday said insurers would be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of annual premium.

These cuts in charges would make Ulips more attractive to buyers since they will have to pay lower charges for the same premium they paid earlier. In the long run, this will add to Ulip buyers funds. Lower charges will benefit customers, said GV Nageswara Rao, MD & CEO, IDBI Fortis Life Insurance. However, this could mean lower commission to agents, which might affect Ulip sales, he added.

The capping of expenses guidelines have been made very stringent, this will have quite far reaching consequences for the industry, said Kamesh Goyal, country manager & CEO, Bajaj Allianz Life Insurance. Small regular premium policies will become unviable, thus a large proportion of people who were paying premium of less than Rs 15,000 or so a year will suffer badly, Goyal added.