Index linked insurance plan are not something new but will be a revamped version for which the IRDAI has set up a working committee to make an evaluation on its likely relevance and how they will be of help to investors in contrast to the conventional saving products.
The Authority is in receipt of requests from life insurers to allow them to offer index linked products. Current IRDAI, product regulations do not specifically permit insurers to sell index linked products. However, taking into considerations requests from life insurers, it has been decided to constitute a working group to examine various aspects of Index Linked products in Life Insurance Segment", said the IRDAI notification dated September 1, 2020
What Is Index Linked Insurance Product (ILIP)?
Here what is being suggested is these insurance plans in their new avatar may be either linked to benchmark indices Sensex and Nifty or may be tied to benchmark bond yield.
Index-linked insurance policy (ILIP) returns will be benchmarked to an index which will allow the policyholder to get a guaranteed value. The benchmark index will be approved by IRDAI. ILIPs could also be offered as pension products and must give non-negative positive returns. "Index-linked insurance plan can be promoted as an unbundled product and cannot be sold with any other financial product," founder of PolicyX, Goel said.
ILIPs or index-linked insurance product as they existed before
These product were on shelf from the period 2000-2012 and offered guaranteed return of + to 3% on indices Nifty, Sensex. And working like a bank account with each policyholder having a distinctly managed account.
ILIP Vs ULIP
Also, there is a distinct difference with the Unit linked insurance product where the investor may channelize his money into different funds such as money market, hybrid, debt and equity. So, while the return from ULIPs shall be based on the fund's return into which ULIP corpus is invested, return from ILIP is generally non-negative positive return.
Index linked insurance product
For last few years, the rally in Nifty has been triggered by gains in handful of stocks and equity funds as well as ULIPs delivered return in line with the benchmark indices.
So, ILIPs may be rewarding with better positive returns as there is expected again that managers will fund it difficult to offer return better than the indices.
Also, these products possibly may entail lower charges in comparison to traditional savings products.