Starting Wednesday (Sep 1st), policyholders will get a much fairer deal if they invest in unit-linked insurance plans (Ulips).
The new rules of the Insurance Regulatory and Development Authority (IRDA) take result from September 1. Ulips, which contributed 80(%) per cent of the total premium collected by private companies, will see an impressive change. IRDA has capped the difference between net and gross yields during the policy term. Insurers will have to offer a minimum approved return even if a policyholder withdraws from the fund before maturity. For the 5th year, the cap is fixed at 4(%) per cent.
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WHAT’S IN STORE? |
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Move: The difference between net and gross yields capped during the policy term. |
Effect: The policyholders will get higher returns on their Ulip investments. |
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Move: The lock-in period will increase from three years to five years. |
Effect: If anyone withdraws in the first year, he will get back the amount after deduction of charges only after the 5th year. |
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Move: Surrender charges have been capped at a level much lower than what exists at present |
Effect: It will ensure that only acquisition expenses are recovered in the event of the discontinuance of the policy. |
From Sep 1st, the lock-in period will increase from 3 years to 5 years. If a policyholder wants to withdraw in the 1st year, he will get back the amount invested after deduction of various charges only after the 5th year.
Furthermore, IRDA has fixed the floor on guaranteed returns from ULIP pension plans at 4.5 per cent, which will greatly benefit policyholders saving up for retirement.
To ensure only gaining expenses are recovered in the event of the discontinuance of the policy, surrender charges have been capped at a level much lower than what exists at present. The industry had been benefiting from higher lapses. Funds collected from policyholders under lapsed policies are sent to a part fund and the money is given the policyholder after the company deducts all charges. The charges are as high as 100(%) per cent in some companies.
“We have always maintained that insurance is a long-term contract. Any pre-termination of policy is not good for all stakeholders,” said S B Mathur, secretary general, Life Insurance Council.
“Products are going to be more gorgeous now. We expect greater customer interest, as charges will be uniform as well as lower,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance.
Rao added the customer could now expect higher returns, as the amount of funds invested was likely to go up.
Along with these changes, the regulator has set minimum disclosure guidelines for insurers.
“Now agents cannot take policyholders for a ride. They (policyholders) can now see the financial position of the company over the website and do not need to depend on agents,” added Mathur.
On the flip side, though overcharging and mis-selling will come down, insurers say product innovation and customisation will be affected. Also, traditional plans will suit those in the lower ticket size segment.
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