Current ULIP Guidelines, Benefits and Impact on existing ULIP policies

What is ULIP?
A Unit Linked Insurance Plan (ULIP) gives investors the benefits of both insurance and investment under a single integrated plan. When an investor purchases units in a ULIP, he or she is purchasing units along with a larger number of investors, just like an investor would purchase units in a mutual fund.

What are the ULIP guidelines?
  • Lock in for Five Years and Premium Payment Term: Minimum lock-in period and term is 5 years, excluding single premium policies.
  • Increase in Minimum Sum Assured: The minimum sum assured multiple is 10 times for age at entry below 45 years and 7 times for age at entry above 45 years. Sum Assured cannot be less than 105 percent of total premium paid including top ups. 
  • Net Reduction in Yield for Every Year from Year 5: The guideline states the impact of charges on the investment over the period of 5 years. At maturity of the policy, this reduction will be maximum 3% for policies with term less than or equal to 10 years and 2.25% for policies with term above 10 years.
  • Cap on Discontinuance Charge: IRDA has introduced a cap on surrender charge, 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. The cap on discontinuance charge illustrated below:

Annualized Premiums Paid 

 Discontinuance charge (in %)

5

4

6

3.75

7

3.50

8

3.30

9

3.15

10

3.00

11 and 12

2.75

13 and 14

2.50

15 and thereafter

2.25

 
  • 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 will ensure a larger corpus is collected and used for retirement planning and not for other life stage needs. IRDA has also made it mandatory that all unit linked pension products must offer minimum guaranteed return which would be specified by IRDA from time to time. Even spread of charges during the lock-in period. The overall charges in ULIPs should be spread evenly over the lock-in period of 5 years.

How does it benefit the customer?
The guidelines provide superior customer value proposition and ensure that life insurance is promoted as long-term protection and savings tool.

What happens to the existing ULIP policies?
There is no change in terms and conditions of existing ULIPs.

Should you discontinue existing ULIPs and buy a new one?
It is always advisable to remain invested in life insurance policies for the full tenure to get optimal benefits of protection and long-term savings.