ULIP Insurance India

ULIP Insurance India-Pay less Charges Now

ULIP Insurance India -Pay less Charges Now

There is good and welcome news for investors willing to invest in ULIP insurance policies. T

he Insurance Regulatory & Development Authority (IRDA) has put a cap on overall charges that insurance companies can charge subscribers of unit linked insurance policies (ULIPs).

In the recent years ULIPs or Unit Linked Insurance Plans has been the thrust area for insurance companies and contributes to a major part of life insurance business in India.

ULIP plans are a combination of insurance and investments and easy to invest compared to term insurance or other traditional insurance policies. 

There was always a conflict with regard to the very high charges levied by insurance companies (up to 60% in some cases) as compared to mutual fund.

ULIPs provide life cover and invest part of the premium in stocks and bonds. In most cases, the sum assured in the policy varies according to the value of its underlying assets.

A right move by IRDA to cap the charges for ULIP plans considering the consumers benefit in mind.

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 All existing products that do not meet the requirements should be withdrawn or modified by December 31, 2009 as stipulated by IRDA.

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.”

Gross yield: This is the yield generated by the ULIP before all charges are deducted.

Net yield: This is the yield generated by the ULIP after all charges are deducted.

Investments in ULIP or Unit Linked Insurance is a long term planning and high initial charges can delay the break even time for the investments .

Recently SEBI has scrapped the entry load on mutual funds from 1 August and most of the Mutual Fund Advisors were shifting to selling insurance as the commissions were higher in insurance selling, but this move was expected from IRDA sooner or later.

It is still not clear if the mortality charges (Charges for Insurance Cover) are part of the overall charges or they are separate from the cap. Ideally the mortality charges should not be part of the above charges as they purely depend upon the age and health condition of the consumer and the charges goes higher along with age.

Advantage to Consumers: -

1. Investing in ULIPs will become cheaper

2. Expected returns from investments in ULIP will be higher due to less initial and recurring expenses.

3. Advisors will not push ULIP aggressively and mis-selling could be brought down if not stopped.

[source: https://www.bajajallianz.com/Corp/ulip-plans/ulip.jsp]

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