The Brand New ULIP Product

New Features of Ulip Plans:

From September 1 2010, these new changes will be implemented, Insurance Regulatory and Development Authority (IRDA) recently had come up with new guidelines that are aimed to make the ULIPs more investor friendly and reduce the mis selling which is happening in the markets. IRDA has issued various guidelines.

1) Increased lock – in – period: For all ULIP`s the lock in period has been increased from 3 years to 5 years which also includes top-up premiums. The residuary payments for the lapsed policies or surrendered policies will be payable on the expiry of the five year lock in period. The overall charges will be distributed in an even fashion across the lock-in-period and no front loads any more. Apart from the regular premiums, additional premiums or top-ups premium will be treated as an individual single premium policy that will have a sum assured attached to it. A policy tenure of below or equal to 10 year will have 1.25 times of the single premium paid as the sum assured and for policy tenure greater than 10 year will have 1.10 times the single premium paid as the sum assured. Top-up premiums will also have a lock-in-period of minimum 5 years.



2) Minimum insurance cover: All ULIP`s will now offer broadly 7 to 10 times the first years premiums as minimum insurance cover. This depends on the age of the policy seeker, single premium policy or regular/limited premium policy and the policy tenure. Earlier which was 5 times the first year’s premium amount.


3) Limits on ULIP Charges: IRDA has capped on the maximum difference between the gross yield and the net yield. This will ensure reduction on the commission and expenses born by the policyholder making the charges simpler and easily understandable. For a policy tenure upto 10 years the difference cannot be less than 3% and for policy tenure above 10 years the difference cannot be less than 2.25%.



4) Surrender Charges: There will be no surrender charges if the policyholder surrenders the policy after the 5-year lock-in-period. Policy surrendered before 5 years the surrender penalty is deducted from the fund value and the balance will be paid to the policyholder.


5) Surrendering or cancellation of the policy: The fund value of the discontinued policy is credited to the “discontinues policy fund” by the insurer. The policyholder will get the refund only after the completion of the 5-year lock-in-period. The discontinued policy fund will earn a minimum interest rate of 3.5%p.a. and will be paid along with the total fund value deposited. Hence the income earned on the fund value and the fund value will not be available to the shareholders. Taking this a step ahead even when the insured or the nominee is untraceable the insurers will set aside the fund separately and show in their annual reports with age-wise break-ups of the sums.


6) Partial withdrawals: No partial withdrawals are allowed before the 5-year lock-in-period.

Apart from all these, the distribution channels of the insurers are required to provide a benefit illustration based on two scenarios i.e. @6% and 10%. The illustration should also account for all the policy related charges like mortality, morbidity, riders and guarantees on investment, commission amount to the brokers and the agents.


The biggest benefit, which any individual is going to draw out of it are the lower charges. Lower charges simply mean that more money will go towards investment, which means greater corpus on maturity. Along with that you will also get benefit of the charges being spread over a period of 5 years.

Looking at the changes, it looks like the ULIPs in the new avatar would be much more investor friendly and will benefit the investor better than before.

Source: Moneycontrol.com