The much anticipated guide and instructions regarding lock-in period for Unit Linked Insurance Plans or ULIPs has finally emerged through the decision of IRDA or the Insurance Regulatory and Development Authority. From the previous three years period, IRDA deemed it appropriate to increase ULIPs lock-in duration up to five years. This decision finally stopped the disagreement between SEBI’s market regulators and IRDA itself.
The said decision above formalizes the lock-in period for ULIPs to increase to more years from their current 3 years period, making it to 5 years. This change has to take effect and must be followed from now on since IRDA would like to assure that ULIPs will now be treated not anymore as short term products but as long term policy insurance product. Except for the pension product, all the rest of the ULIPs will be categorized as yearly or annuity products. Meaning to say ULIPs now will have a health cover or a mortality cover as a consequence.
If in case there will be an amount to be paid by the policy holder which is considered as any top in the insurance policy, then this top will definitely be regarded as one single premium. This simply means that all top up that the policy holder makes will incur an added insurance cover that will back up the said insurance premium itself.
Moreover, no withdrawals will be allowed when it comes to the pension and annual product. ULIPs would like to remind its policy holder that those pension annuity products may not necessarily have a life or health cover. But, these types of insurances must be upgraded or turned into annuity on its maturation.
ULIPs pension annuity offers will have 4.5% yearly minimum rate of investment or will be dependent in view of the suggestion or the regulator. Regarding ULIPs loans, there will be 40% of the NAV that the policyholders can take as their net loan. It must however be noted that it should be in the form of an equity oriented ULIP so that it will give the client an equity as high as 60%.
In view of the ULIPs’ charges,the policy holder should be aware foremost in view of some standard and legal charges which include the following: guarantee maturity charge, highest NAV guarantee charge, surrender charges and fund switch charge. Other insurance companies may even include hidden charges to their plan holders.
In conclusion, this new guide and instructions will take effect starting September 1st, 2010 in order to give the rest of the companies more than enough time to comply with them.