ULIPs have been blamed for the high upfront commissions to the Agents and a huge letdown for the customers. A fallout of the spat between SEBI and IRDA is that IRDA has tightened a lot of norms for ULIPs (Unit Linked Insurance Plan).

The new norms are supposed to be more customer friendly. In any case, the concept of combining insurance and investment into a single financial product was not a bad one. Let's take a look at the changes:

1. Lock-in period increased to five years: By implementing this change the IRDA has ensured that investors’ commitment to stay with ULIPs is higher and they enter these products with a long term view only.

2. Difference between the net yield and gross yield capped: As per the IRDA, the difference between the gross yield (actual return earned by the fund) and the net yield (yield after deducting the actual expenses incurred by the fund) should not be more than 3 per cent in case of products with a tenure of less than 10 years and 2.25 per cent in case of products over 10 years. With this cap, unwanted expenses and extremely high agent commissions will be kept under control.

3. Surrender charges capped at much lower levels: Now, the insurance company can recover only the client acquisition cost and not earn huge amounts under the tag of ‘surrender
charges’. This will ensure that the policy holder will receive a higher sum in case of premature surrender as compared to earlier.

4. Minimum annualised guarantee of 4.5 per cent return on pension funds mandatory: This means that the policy holders (especially senior citizens) will be protected from market volatility. This will also ensure that the insurance companies will take limited risk while managing pension funds.

5. Loan up to 40 per cent of the market value of ULIPs can be sanctioned:
With a loan facility available on ULIPs, investors can arrange for the funds without having to surrender the policy.

6. Minimum insurance cover prescribed for regular and top-ups: With this guideline, IRDA aims to ensure, to a certain extent, that insurance products will not be viewed as only an investment product.

As we said earlier, with these new guidelines, the IRDA has made a good attempt to make ULIPs more consumer-friendly. The step is certainly in the right direction…

ULIPs have emerged as suitable long-term insurance-cum-investment solutions for all.
The benefits will make them appropriatefor long-term investing, enable access to better liquidity and offer scope for better returns.

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