Charges Deducted in ULIPS

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ULIP
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Charges Deducted in ULIPS
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• Ulips, which not long ago were the darling of
  insurance brokers, have fallen out of favour
  among intermediaries after the new norms for the
  products came into effect.
• Often investors had to wait for years to recover
  their initial investment. Under the new norms,
  Ulips are now clearly structured to favour the
  consumer. With far less being deducted from the
  premia compared to pre-September 2010, more is
  invested, thereby holding out potential for
  higher returns. The regulator has also stipulated
  higher minimum insurance covers on Ulips while
  they have been positioned as long term products
  with longer lock-in stipulations.
• New ULIP guidelines and the effects?
• The changes and its effects are as under
• 1. Lock in for Five Years and Premium Payment
  TermMinimum lock-in period has been revised from
  the current 3 years to 5 years and barring single
  premium policies, the minimum payment term has
  also been raised to 5 pay.

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• 2. Increase in Minimum Sum Assured The minimum
  sum assured multiple has been increased to 10
  times for age at entry below 45 years and 7 times
  for age at entry above 45 years. At no time can
  the sum assured be less than 105 per cent of
  total premium paid including top ups. All top ups
  also must have life insurance cover built into
  them.
• 3. Net Reduction in Yield for Every Year from
  Year 5 This new guideline stipulates the maximum
  net reduction in yield every year from 5th year.
  It is primarily an extension of the earlier
  stipulation of maximum net reduction in yield of
  3 for policy term up to 10 years and 2.25 for
  policy term above 10 years.
• 4. Cap on Discontinuance Charge IRDA has
  introduced a cap on surrender charge, now termed
  as policy discontinuance charge, basis the year
  of discontinuance and annual premium. This allows
  life insurers to charge only a small penalty on
  early surrender of policy.

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• 5. Modifications in Unit Linked Pension Products
  Partial withdrawals in Unit Linked Pension
  products will not be allowed. On maturity, one
  third of the corpus could be taken as lump sum
  and rest must be used for buying annuities. This
  change will ensure a larger corpus is collected
  and used for retirement planning and not for
  other life stage needs.
• The new guidelines stipulate that the overall
  charges in ULIP should be spread evenly over the
  lock-in period of 5 years.

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