The insurance regulator has tightened the norms on all unit linked insurance plans (ULIPs) to offer life cover on these products, even as it is aggressive a turf war with markets regulator on overseeing such equity-linked schemes.
The Insurance Regulatory and Development Authority (IRDA) has said the norms would be applicable from July 1, adding up that all ULIP policies, as well as pension and annuity products, should offer a minimum sum assured payable on death.
The tightening of rules is seen as a fight of its tussle with the capital markets regulator, the Securities and Exchange Board of India (SEBI), over the regulation of ULIPs, a accepted investment product.
But IRDA member-actuary R. Kannan said the policy review was an ongoing process. “The new norms are no way linked with the current issue with SEBI,” Kannan told IANS.
SEBI last month had barred 14 insurers from promotion these products without its approval. The ban was, however, lifted after the government’s intervention. The matter has gone to the courts, which will rule who would control ULIPs.
The IRDA had banned loans on ULIPs and allowed part withdrawals only after 5th anniversary year of the policy.
Under the revised guideline, however, in the ULIP pension and annuity products, it has banned limited withdrawal and asked the life insurers to change the accumulated fund value into an annuity at maturity.
But the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity.
In the case of surrender, only up to a maximum of one-third of the surrender value could be availed in lump sum and the outstanding amount must be used to purchase an annuity, the new norm stipulates.
On the top-up premium, IRDA has specific that it should have a lock-in period of 3 years from the date of payment. Top-ups are not allowed throughout the last 3 years of the deal.
A top official of a private life insurer told IANS that most of pension and annuity products were sold as pure investment products. “As a result, life insurers see large surrenders and withdrawals in these two segments affecting their operations.”
For most of the life insurers, pension products add nearly 25(%) per cent to their premium income. With turf war between IRDA and SEBI on the ULIP issue, he said, the former seemed to pre-empt any such recurrence in the pension and annuity products.
“The motivation for the new guideline is to offer life insurance cover in all products. While long life risk of a policyholder is borne by the life insurer in the case of pension products, we wanted to offer life insurance cover on all products”. Kannan said
Citing the 47 pension products presently in the market, Kannan said only 25 offered life insurance cover and the left over 22 provided an option for the policy-holder to opt for life cover.
Kannan said “Only 35-40(%) per cent of the pension policy holders have life insurance cover and we want to offer that to all the policy holders,”
However, R. Ramakrishnan, industry expert and a member of the Malhotra committee on insurance reforms said the concept of top up premium should be scrapped.
“Top-up is purely a mutual fund concept and it shouldn’t be allowed in life insurance policies. For the amount of top-up a person should be issued a single premium policy,” he told IANS.
According to him, there is no difference between pension and annuity products in India different in the UK where pension products are offered handsome tax concessions.
Ramakrishnan suggested, “To prevent surrenders and withdrawals the difference between the premium paid and the surrender value should be taxed at source,”
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Tags: Insurance, Life Insurance, ULIP, ULIPS
