Unit Linked Products
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Unit Linked Products

IRDA - Unit Linked Products

Unit linked insurance products are complex in nature. In order to ensure fair treatment to the policyholder, IRDA has taken several initiatives.

  • Insurers must provide the prospect/policyholder all relevant information about various charges for each policy year
  • Insurers must provide Benefit Illustrations giving two scenarios of interest – at 6% and at 10%
  • The prospect is required to sign on the illustration also while signing the proposal
  • The lock-in period has been increased from three years to five years to reflect the long-term, protection function of the policy
  • All regular premium/ limited premium ULIPs shall have uniform/ level paying premiums
  • Any additional payment shall be treated as single premium for the purpose of insurance cover Charges on ULIPs should be evenly distributed during the lock-in period so that the expenses are not excessively front-ended
  • All limited premium paying term unit linked insurance products, other than single premium products, shall have premium paying term of at least five years
  • All unit linked products, other than pension and annuity products should have a mortality or health cover
  • The minimum cover to be offered has been specified for these segments
  • A cap on charges has been imposed from the 5th year onwards to smoothen the charge structure for the policyholder
Discontinuance/ surrender charges

A new regulation was notified to ensure that policyholders do not get overcharged when they discontinue their policies. They include:
  • An insurer shall recover only the incurred acquisition costs and these charges should not be excessive
  • IRDA can order refund of discontinuance charges if found excessive on enquiry
  • Discontinuance charges are capped as a percentage of fund value and premium and also as an absolute value
  • When discontinuing a policy, a policyholder shall be entitled to revive it or withdraw from it without any risk cover
  • The Grace Period for different modes of premium payment are clearly defined
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Unit Linked Products
ULIP lock-in period increased to 5 years now from 3 years.

Charges on ULIPs should be evenly distributed in the lock in period.