India’s insurance regulator—the Insurance Regulatory and Development Authority (IRDA)—boosted by a clear mandate from the government to regulate unit-linked insurance plans (ULIPs), will unveil new rules soon to raise the risk cover and to lower charges to make this product more attractive to investors.
In what could potentially be a game changer, ULIPs are set to offer guaranteed maturity benefits to protect policyholders even when markets crash, said a senior official in the regulator’s office.
The aim is to encourage long-term savings and help policyholders build a nest egg to cater to their needs as they grow old. Insurers now offer guaranteed returns only on pension policies that are not sold on a unit-linked platform.
“We will revise the guidelines for ULIPs to make it attractive for investors. Insurers will also be given more time to redesign these products,” IRDA chairman J Hari Narayan told ET. Over the weekend, the government promulgated an ordinance to bring ULIPs under the regulatory purview of IRDA.
“It is best to give customers the option because if a guarantee is provided, the risks will be lower and hence returns will also be lower,” said GV Nageshwara Rao, CEO of IDBI Fortis Life Insurance. Pension plans will now have to be bundled with a life cover or a health cover or annuities. Insurers can offer all three, but at least one will be mandatory. IRDA is also planning to prescribe the minimum health cover for policyholders.
For pension plans, the insurer has to convert the accumulated fund value into an annuity at maturity. The policyholder or the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum on maturity. If the policy is surrendered, the policyholder will get only a third of the surrender value. Further, the policy holder will have to buy an annuity for the remaining amount.
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