subject: IRDA gave a facelift to the structure of ULIPs [print this page] IRDA gave a facelift to the structure of ULIPs
The Insurance Regulatory and Development Authority (IRDA) introduced sweeping changes to the structure of Unit-linked Insurance Plans (ULIPs). Accordingly, with effect from September 1, 2010, ULIPs will offer the following:
A minimum guaranteed annual return of 4.5% on pension plans
A 10-times increase in the minimum risk cover
Even distribution of charges across the increased lock-in period (5 years)
A ceiling on net and gross yields
Mortality or health cover
Risk cover on top-up premiums
It is not a coincidence, that these new guidelines came almost immediately after the Government issued an Ordinance to clarify that ULIP's will continue to be regulated by IRDA, thus putting to rest, a fairly ugly and unnecessary public spat between IRDA and SEBI on turf issues. In our earlier issues, we had always maintained that, when the dust settles on the jurisdiction issue, investors will gain from a more investor friendly ULIPs being introduced.
But now it appears that the insurance industry is not too happy with the changes. . Kamesh Goyal, Country Manager & CEO of Bajaj Allianz Life Insurance said, "The capping of expenses guideline has been made very stringent. Small regular premium policies will become unviable; thus, a large proportion of people who were paying premium of less than Rs 15,000 or so a year will suffer. Second, the commission structure can't sustain an agent's income; the agency channel will suffer badly. I hope we don't land in a situation where a product is very good but no one is willing to sell it".
PersonalFN believe the guidelines framed by IRDA, are a step towards making ULIPs an attractive insurance-cum-investment proposition. We also feel that the above guidelines may compel insurance companies to slash commission rates for agents; which would be detrimental for insurance agents, but benefit policy holders in the long-term.
Two issues on which there is silence are:
How will the new avatar for ULIP be treated from a taxability perspective? Now and also when the DTC is introduced, supposedly in 2011?
Will there be two versions of ULIPs pre September 2010 and post September 2010, with different features and different tax treatments?
