There is a bit of relief for investors who invest in unit-linked insurance plans (Ulips). IRDAI has asked life insurance companies to offer settlement option on unit-linked policies which are maturing up to May 31, 2020. This move is expected to help Ulip holders to not receive the fund value at a time when the stock markets, and therefore, the fund values are down. Those Ulip policyholders, whose Ulips are maturing before May 31, may choose to let the money remain invested and withdraw later as and when the market conditions improve.
IRDAI in a circular to insurers has called for Settlement Options for maturity payout of Unit Linked Policies, even if the original terms and conditions did not have any mention of this provision. “This is because ULIP fund values would have seen depletion in the current volatile market conditions. Hence, to protect the interests of policyholders whose polices are maturing before 31 May 2020, the regulator has provided them with the option to receive their maturity benefits as staggered payments over the next five years. Thus if policyholders want to continue and wait for the markets to improve from present levels, they can opt for partial settlement option on their ULIP payouts,” says Anil PM, Head – Legal & Compliance, Bajaj Allianz Life Insurance.
According to the circular, “Where unit-linked policies mature and fund value is to be paid in lumpsum, Life Insurers may offer settlement options in accordance with Regulation 25 of IRDA (Linked Insurance Products) Regulations, 2013. This onetime option is regardless of whether such option exists or not in the specific product.”
However, the IRDAI further cautions insurers that the life insurers, have to exercise all due care and diligence to explain clearly the possible downside risk of continued fluctuation of fund value based on daily NAV and clear consent has to be obtained from the policyholder.
In life insurance policies, including endowment, money-back and Ulips, the policyholder on surviving the term of the policy gets the maturity value. In the case of Ulips, it is the fund value which is equal to NAV of the fund multiplied by the number of units the policyholder holds.
With the stock market down by almost 30 per cent over the last 12 months, the fund value is down in the Ulips. Under the settlement Option, the policyholder may opt for withdrawing the maturity proceeds not now but at a later date.
However, there is a big risk to it. If the market goes down further, the fund value will again erode. The policyholder, therefore, needs to take an informed decision after consulting the insurance advisor.
In another move, the IRDAI has provided an additional grace period for life insurance policies whose premiums fall due in March and April 2020. One may, therefore, opt to use the grace period of another 30 days or pay through any of the online mode of premium payment.