The lock-in period for all unit-linked products (Ulips) has been increased from three years to five years, including the top-up premiums, thereby making them long-term financial instruments which basically provide risk protection, Irda said in the guidance note, released today.
The step has made Ulips a long-term investment vehicle and will insurers increased time horizon for the investment, industry players said.
Besides insurance cover on such products, the premium has also gone up to 10 times of the first-year premium compared to existing five times.
The fight between Sebi and Irda was basically on the issue whether Ulips are investment product or insurance schemes. Ulips are those insurance products the value of which are linked to market price of the stocks in which a part of those money is invested.
Irda today tried to increase the insurance aspects of Ulips. As was expected commission and expenses have been reduced by evenly distributing it through out the lock-in period.
Charges on Ulips are mandated to be evenly distributed during the lock-in period to ensure that high front-ending of expenses is eliminated, Irda said, adding all limited premium Ulips, other than single premium products, shall have premium paying term of at least five years.
The regulator said that insurers shall will provide a mortality cover or a health cover to all Ulips, other than pension and annuity products, thereby increasing the risk cover component on them.
Commenting on the guidelines, MetLife India managing director Rajesh Relan said, prima facie the circular benefits the customer. This is yet another step taken by the Irda to add more value to the policyholder and make the products more transparent. This will also improve persistency and provide long-term and sustainable income stream for distributors. However, Relan pointed out, the full impact of these steps on the industry players, is yet to be ascertained, as we would seek further clarifications on certain clauses. Max New York Life Insurance managing director Rajesh Sud said improving protection on Ulips will make them more attractive. Secondly the move provides good value proposition to the consumers.