Unit-linked insurance plans (ULIPs) are set for a major regulatory overhaul in the aftermath of the Insurance Regulatory and Development Authority winning the jurisdiction ‘war' on the Securities and Exchange Board of India .
The vital changes such as cap on charges and increase in risk cover are expected to be out “very soon”, according to a senior IRDA official.
The risk cover could be “nearly doubled” with a guarantee-clause in the case of pension products. At present, the risk cover is minimum five times in case of ULIPs. The Authority has also felt the need for capping the surrender charges as well. “We see that some policy-holders are at significant loss due to lack of a cap on surrender charges,” he said.
The ‘groundwork' on the charges has already been done and they are to be announced formally soon.
Active Regulation
After the SEBI's ban on ULIPs in April, IRDA had swung into action and brought in significant changes in regulation.
All top-up premiums made during the period of contract in ULIPs should include compulsory insurance cover treating it as a single premium, according to IRDA.
It had allowed partial withdrawal only after fifth policy anniversary for all unit-linked products except pension /annuity products. In the case of unit-linked pension /annuity products, no partial withdrawal shall be allowed and the insurer shall convert the accumulated fund value into an annuity at 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 remaining amount must be used to purchase an annuity it said.
The insurers are supposed to ensure conformity to these guidelines for products to be sold from July 1.
