The Hindu Business Line : ULIPs may soon offer more security, returns

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ULIPs may soon offer more security, returns

IRDA’s new norms to provide for lower minimum sum assured limit

As of now, higher sum assured is being thrust upon the customer even if he does not require a higher sum. This will not be there now. — Mr C.S. Rao, IRDA Chairman

G. Naga Sridhar

Hyderabad, March 14 Policy holders of unit-linked insurance products (ULIPs) can now look forward to both long-term security and better returns.

A new initiative by Insurance Regulatory and Development Authority (IRDA) is expected to bring benefits to ULIP holders, who account for nearly 70 per cent in the insurance industry at present.

New norms

“We have reduced the norms pertaining to the minimum sum assured in unit-linked products to protect the long-term security interests of the policy holders. As of now higher sum assured is being thrust upon the customer even if he does not require a higher sum. This will not be there now,” Mr C.S. Rao, Chairman, IRDA, told Business Line here.

As per a notification hosted on the IRDA Web site, the minimum sum assured/death benefit in unit-linked products should be 125 per cent of single premium where the policy term is less than 10 years and 110 per cent (where the premium is 10 years or more).

In non-single premium category, it should be five times of the annualised premium. These norms would come into force from April 1, 2008.

Compared to the existing norms, the new norms would provide for lesser sum assured in single premium products for 10 years or more and in non-single premium category sum assured would be down by anywhere between one to five times depending on product specifications, according to industry experts.

According to Mr V. Rajagopalan, Chief Actuary, ICICI Prudential Life Insurance, the new norms would augur well for the insurance industry by providing a better distinction between short-term and long-term products.

“Because, insurance should be seen more as security than an investment,” he pointed out.

There will also be immediate benefit for the customers as a reduction in minimum sum assured would mean lesser mortality charges, according to Mr Madhav Kumar, Vice- President, ING Vysya Life Insurance.

Stability

By promoting long-term character of the policies (ULIPs), a lesser minimum sum assured would bring stable returns. “As unit-linked products depend on the market, there should be a long term play (over 10 years at least) to give about 10 per cent return,” he said. There could be marginal dip in the premium payment (based on the nature or product) as well.

Most of the companies are yet to look into the new norms and a clear picture would emerge in due course. “However, there can be changes in premium calculations and related aspects,” an official of Kotak Mahindra Old Mutual Life Insurance Ltd said.