IRDA's new guidelines classified insurance products into 3 broad categories namely traditional plans, variable insurance plans and unit-linked insurance plans (ULIPs).
Know about ULIPs. With the implementation of the set guidelines, new ULIPs are set to yield higher returns with adequate cover.
Among several other changes, some of the important ones that have rendered new ULIPs more lucrative and a better bet in comparison to old ULIPs are:
1. Upper limit set for commission as well as charges: The regulator has fixed a cap on the commission that can be charged upfront and instead has suggested commission charges to be distributed evenly through the term of the ULIP plan. With it, more portion of the insured shall get invested in the scheme, making him realize a higher sum together with adequate cover in the long run.
2. Basic function of insurance kept intact with better and adequate cover: The basic purpose for which insurance cover is sought is also safeguarded providing adequate life cover. The minimum sum assured value is now suggested to be a minimum of 10 times the premium paid annually.
3. Lock-in term for new ULIPs has been increased from the previous term of 3 years to 5 years: To enable customers of ULIPs realize higher returns due to compounding, IRDA has increased the lock-in term. Further, the upfront charges shall be distributed evenly through the 5-year lock-in term.
4. Death Benefit: Death benefits in case of new ULIP plans has also been increased. Some of the insurance companies are offering higher death benefit of as nuch as 40 times the annualized premium.
5. IRR or yield from ULIP to be not below 7.75%: With a minimum specified Internal rate of return or IRR on ULIP of 7.75%, the regulator has also asked insurers to notify policyholders month on month regarding reduction in yield or the rate at which investment growth is lowered on their ULIP investment.
6. Some of the ULIPs being offered online entail no commission charges: Like other traditional plans, ULIPS are also available through the online route and customers can purchase them with no commission charges. So, investors money paid as premium for the ULIP plan as a whole gets invested in the scheme.
Also, with enhanced flexibility in respect of premium paying term, cover, fund options to park the funds, withdrawals and top-up options, the new ULIPs are proving to be more customer-friendly.