ULIPS have enjoyed their share of compliments and criticism in our country....
Two weeks back, IRDA banned those unit-linked insurance plans which were offering returns basis the guarantee of highest NAV on maturity. Many experts felt that this was just another well-packaged ULIP and would harm the customers and their investments. IRDA was sceptical about the product for quite sometime and hence intervened in the distribution of such products before it caused any damage to the customers or the insurance companies.
Some of the problems with Highest NAV guaranteed unit-linked insurance plans as discussed by experts are that such plans:
- Are expensive when compared to normal ULIPs
- Offer very little protection cover
- Allocate a sizeable portion of the investment amount in the debt funds (relatively secure but offers low to moderate returns)
- Attract an additional charge, referred to as guarantee charge, further reducing the investment component
- Are unevenly structured to offer low yields
- Offer less flexibility to manage premium allocation
Moreover, one of the key reasons IRDA requested to discontinue this product was because the regulator was of the view that life insurance companies will resort to a riskier way of fund management in order to keep up with their commitment of guaranteed returns.