Policy holders of Unit Linked Insurance Plans (ULIPs), who wish to pre-maturely withdraw, can now be glad as their investment will soon have some protection. The Insurance Regulatory and Development Authority (IRDA) are planning to limit cut in yield from the 6th year (of the policy) beyond, according to reliable sources.
Earlier, the cap was applicable only at the time of development. If anybody pre-surrenders their policy, the return on the investment is dependent on the discretion of the insurer.
The new norm, which will be announced shortly will in a method remove the earlier anomaly and make ULIPs more customer-friendly.
“Further, the cap on charges will also ensure reduction in absolute level of commissions and their front-loading which is supposed to have been resulted in the miss-selling of ULIPs,” said a source in IRDA.
For an insurance policy of 10-year tenure, the cap on reduction in yield could be at about 3(%) per cent with little variations.
When implemented, the cap on charges will result in drop of allocation charges to more than 6(%) per cent per annum on a standard during the first 5 years.
The insurers would, however, have the give within these limits to charge higher amounts during the 1st year and smaller later so as not to go beyond the cap, the source said.
An official announcement on the new average is expected in a couple of days.
The reform of ULIP regulation has been on the program since January 2010 when IRDA had capped difference between gross and net yield.
As of now, the difference between gross yields and net yields is at 3(%) per cent for 10-year products. Beyond 10 years, it could not exceed 2.25(%) per cent at present.
After the beginning of the stand off with Securities and Exchanges Board of India over the jurisdiction of ULIPs, the Authority was more active in brining out changes in ULIPs norms. Last month, it said that all top-up premiums made during the period of contract in ULIPs should include required insurance cover treating it as a single premium.
It had allowed partial withdrawal only after 5th policy anniversary for all unit-linked products except pension /annuity products, among other changes.