ULIP

Charges Deducted in ULIPS

Ulips, which not long ago were the darling of insurance

brokers, have fallen out of favour among intermediaries
after the new norms for the products came into effect.
Often investors had to wait for years to recover their initial
investment. Under the new norms, Ulips are now clearly
structured to favour the consumer. With far less being
deducted from the premia compared to pre-September
2010, more is invested, thereby holding out potential for
higher returns. The regulator has also stipulated higher
minimum insurance covers on Ulips while they have been
positioned as long term products with longer lock-in
stipulations.
New ULIP guidelines and the effects?
The changes and its effects are as under:
1. Lock in for Five Years and Premium Payment
Term:Minimum lock-in period has been revised from the
current 3 years to 5 years and barring single premium
policies, the minimum payment term has also been raised
to 5 pay.

2. Increase in Minimum Sum Assured: The minimum

sum assured multiple has been increased to 10 times for
age at entry below 45 years and 7 times for age at entry
above 45 years. At no time can the sum assured be less
than 105 per cent of total premium paid including top ups.
All top ups also must have life insurance cover built into
them.
3. Net Reduction in Yield for Every Year from Year 5:
This new guideline stipulates the maximum net reduction in
yield every year from 5th year. It is primarily an extension
of the earlier stipulation of maximum net reduction in yield
of 3% for policy term up to 10 years and 2.25% for policy
term above 10 years.
4. Cap on Discontinuance Charge: IRDA has introduced
a cap on surrender charge, now termed as policy
discontinuance charge, basis the year of discontinuance
and annual premium. This allows life insurers to charge
only a small penalty on early surrender of policy.

5. Modifications in Unit Linked Pension Products :

Partial withdrawals in Unit Linked Pension products will not
be allowed. On maturity, one third of the corpus could be
taken as lump sum and rest must be used for buying
annuities. This change will ensure a larger corpus is
collected and used for retirement planning and not for
other life stage needs.
The new guidelines stipulate that the overall charges in
ULIP should be spread evenly over the lock-in period of 5
years.

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