Insurance regulator IRDA today said ULIP holders will have to pay up to Rs 6,000 if they want to discontinue a policy within the first four years.
The IRDA (Treatment of Discontinued Linked Insurance Policies) Regulation, 2010, released by the sectoral watchdog today said the charges for discontinuation of ULIPs will range from Rs 1,000-Rs 6000, depending upon the premium paid by the policy holder.
When the policy is discontinued during policy years one to four, the holders of the policy would be charged in this range. However, policies discontinued from the fifth year onwards will not carry discontinuation charges.
"Where a policy is discontinued, only discontinuance charge may be levied by the insurer and no other charges by whatsoever name called shall be levied," IRDA said.
The regulator said that the fund value of the policy would be credited to the discontinued policy fund and the proceeds would refunded only after completion of the lock-in period.
The proceeds from discontinued policies would include, "The fund value as on the date the policy has discontinued, after addition of interest computed at minimum interest rate of 3.5 per cent."
The regulator also said the insurers would give a grace period of 30 days for premium payment.
Upon discontinuation of the policy, the holder can either revive the policy or completely withdraw from the policy without any risk cover.
The insurance companies should send a notice to the discontinued policy holder within a period of 15 days from the date of expiry of the grace period.
The policy holder has to respond within 30 days of the receipt of the notice to revive the said policy, IRDA said.
Unit-linked insurance products, or ULIPs, account for more than 50 per cent of the life insurance business and the money collected is invested in equities.
Complete rules are given below for your ready reference