Policy holders of Unit Linked Insurance Plans (ULIPs), who wish to pre-maturely withdraw can now be happy as their investment will soon have some protection. The Insurance Regulatory and Development Authority (IRDA) is planning to cap reduction in yield from the sixth year (of the policy) onwards, according to reliable sources. Earlier, the cap was applicable only at the time of maturity. If anybody pre-surrenders their policy, the return on the investment is dependent on the discretion of the insurer. The new norm, which will be announced shortly will in a way remove the earlier anomaly and make ULIPs more customer-friendly.
“Further, the cap on charges will also ensure reduction in absolute level of commissions and their front-loading which is alleged to have been resulted in the miss-selling of ULIPs,” said a source in IRDA. For a policy of ten-year tenure, the cap on reduction in yield could be at about three per cent with little variations. When implemented, the cap on charges will result in reduction of allocation charges to more than 6 per cent per annum on an average during the first five years. The insurers would, however, have the flexibility within these limits to charge higher amounts during the first year and lesser later so as not to exceed the cap, the source said. An official announcement on the new norm is expected in a couple of days. The reform of ULIP regulation has been on the agenda since January 2010 when IRDA had capped variation between gross and net yield. As of now, the difference between gross yields and net yields is at 3 per cent for 10-year products. Beyond 10 years, it could not exceed 2.25 per cent at present. After the beginning of the stand off with Securities and Exchanges Board of India over the jurisdiction of ULIPs, the Authority was more active in brining out changes in ULIPs norms. Last month, it said that all top-up premiums made during the period of contract in ULIPs should include compulsory insurance cover treating it as a single premium. It had allowed partial withdrawal only after fifth policy anniversary for all unit-linked products except pension /annuity products, among other changes.