New Rules of ULIP Investments

[Dr. Sanjiv Agarwal]

The investment in Unit Link Insurance Plans (ULIPs) is now all set to be governed by new set rules from the Insurance Regulatory and Development Authority (IRDA), to be incorporated in all ULIPs offered from next month. Accordingly, the three-year lock-in period for all unit-linked products will be increased to five years. This lock-in will also apply for top-up premiums. During this period, no residuary payments will be made on policies which are lapsed / surrendered / discontinued and the residuary payments arising from policies which stand lapsed / surrendered / discontinued during the lock-in period will be payable on expiry of the lock-in period.

 

Also, all regular premium / limited premium ULIPs will have a uniform / level paying premiums. any additional payment will be treated as single premium for the purpose of insurance cover.   All limited-premium ULIPs, other than single-premium products, will have a premium-paying term of at least five years.  All unit-linked products, other than pension and annuity products, will provide a minimum mortality cover or a health cover. All top-up premiums made during the term of the contract-except for pension / annuity products-must have an insurance cover; and should be treated as a single premium.  Insurers shall distribute the overall ULIP charges in an even fashion during the lock-in period.

 

In regard to unit-linked pension / annuity products, no partial withdrawal will be allowed during the accumulation phase and the insurer will convert the accumulated fund value into an annuity on the vesting date. However, the insured will have an option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of vesting. In case of surrender, only a maximum of one-third of the surrender value can be commuted after the lock-in period. The remaining amount must be used to purchase an annuity, subject to certain provisions.

 

 The maximum loan amount which can be sanctioned under any ULlP policy can not exceed 40% of the net asset value (NA V) in those products where equity accounts for more than 60% of the total share. Moreover, it should  not exceed 50% of the NAV of those products where debt instruments account for more than 60% of the total share.

 

It has been made obligatory on all  insurers to conform to these features so that they can introduce the products with due approval from IRDA from September 1, 2010.