IRDA hikes Ulip lock-in period to 5 yrs
After winning the turf war with the markets regulator Sebi over control over Ulips, the insurance watchdog IRDA on Monday tightened the norms for these schemes by raising the lock-in period and insurance cover on them. It also provides a minimum guaranteed return on Ulip pension or annuity products.
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 on Monday.
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.
As per the new guideline, all Ulip pension or annuity products will offer a minimum guaranteed return of 4.5 per cent per annum or as specified by the Irda from time to time. This will protect the life time savings of pensioners from any adverse market fluctuations at the time of maturity, the circular said.
All insurers are directed to conform to these features so that they can introduce products with due approval from IRDA. From September 1, 2010 all Ulips will conform to this circular.
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 on Monday 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 will will provide a mortality cover or a health cover to all Ulips, other than pension and annuity products, thus increasing the risk cover component.
— PTI
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