ULIPS have enjoyed their share of compliments and criticism in our country. Currently they enjoy a small share of any life insurance company’s portfolio. But the insurance regulator is thinking of introducing one benefit in ULIPs which will make them attractive and probably improve their sales.
Under the current guidelines of Unit-linked Insurance Plans (ULIPs), if a policyholder discontinues or stops paying premium within the first 5 years of buying the policy, then their cover ceases to exist. As a result, the insurance company deducts surrender charges from the premiums collected and the funds are transferred to a discontinuance policy fund. This discontinuance policy fund attracts an interest rate of 3.5% per year till the completion of the lock-in period.
According to a recent media report, two industry insiders mentioned that the Insurance Regulatory and Development Authority of India (IRDAI) is reviewing the ULIP guidelines. The regulator is working on a policy structure whereby the insurance cover of the policyholder will continue even if they discontinue paying their premiums within five years of buying the policy. Moreover IRDAI is working closely with the insurance companies to check the feasibility of not deducting discontinuance charge on ULIPs.
If these features are added to the ULIP plans then experts estimate a good recovery in the sale of ULIPs. Let’s hope these discussions materialise soon and customers get access to such accommodating insurance policies.
