The Insurance Regulatory & Development Authority (Irda) has put a cap on overall charges that insurance companies can charge subscribers of unit linked insurance policies (Ulips).
Ulips, the largest selling constituent of life insurance business, are products that club insurance and investment. The changes will come into effect from October 1, 2009. All existing products that do not meet the requirements should be withdrawn or modified by December 31, 2009.
Irda has mandated that the cap on charges will be based on the difference between gross and net yields of any product. The net yield is the gross yield adjusted for all charges. “For insurance contracts which are of tenor of less than or equal to 10 years duration, the difference between the gross and net yields shall not exceed 300
basis points, of which fund management charges shall not exceed 150 basis points.”
“For other contracts (those whose contract period is above 10 years) the difference between gross and net yield shall not exceed 225 basis points, of which the fund management charges shall not exceed 125 basis points,” Irda said in a circular on Wednesday.
“It is important to keep in mind that insurance is a long-term business and policy measures should encourage long-term savings through various instruments available in the insurance sector. On an analysis, it is established that the majority of the products have a tenor of 10 years and above and a smaller proportion is with a tenor of less than 10 years,” R Kannan, member actuary, Irda, said.
Moreover, Irda said that any extra premium due to underwriting rising from extraordinary health conditions, cost of rider benefits, service tax on charges should be excluded in the calculation of the net yield. There should be a mention to the gross and net yield to the customer at the time of sale.
At the time of maturity the insurer must issue the policyholder a certificate showing year-wise contributions and charges deducted, fund value and final payment made to policy holder.
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