Insurance Regulatory Development Authority (Irda) on Wednesday announced a cap on overall charges that life insurance companies can levy on subscribers of their unit linked insurance policies (Ulips).
For those products which have maturity of 10 years, insurance companies have to maintain the difference between gross yields and net yields at 300 basis points.
When various charges levied by insurers are added on to net yield, it becomes gross yield.
?The difference between gross yield and net yield cannot exceed more than 300 basis points,? said Irda chairman J Hari Narayan. Of this, fund mangement charge cannot exceed 150 basis points.
For those products which are of a tenure of over 10 years, the difference between gross and net yields cannot exceed 225 basis points, Hari Narayan said. The fund management charges cannot exceed 125 basis points, he added.
Justifying lower cap on charges for longer term insurance Ulips, Irda said in a circular, ?Insurance products are long-term saving vehicles and the policy prescriptions should help the customers to move towards long term savings-cum-protection rather than short-term ones.?
On an analysis, it is established that the majority of the products have a tenure of 10 years and above and a smaller proportion is with a tenure of less than 10 years.
In order to enable the customers to have a clear understanding of the product and to comprehend various features of Ulips, it is decided that Irda will prescribe one cap on all charges put together. This will also impart flexibility for the insurers and encourages further product innovation, said Irda.
As of today, the private sector life insurers mobilise almost 80% of their premium by selling Ulips whose return depends upon the capital markets.
Nitin Chopra, CEO, Bharti AXA Life Insurance Company Ltd, said, ?The cap on Ulip charges at 2.25% for a gross yield of 10% over the long term, is a significant move for the Indian life insurance industry and its policyholders.
It also encourages a long-term outlook towards life insurance amongst Indian customers and life insurers.
TR Ramachandran, CEO & MD, Aviva India, said that with a cap on overall charges, the customers stand to benefit in the form of higher returns on their investment. Moreover, lower charges on products with a term greater than 10 years will provide further impetus to long-term policies.